The first quarter of 2019 brought with it an abundance of good tidings in the blockchain industry - perhaps rolled over from the end of the previous year - along with new exciting and promising digital fundraising mechanisms, like an Initial Exchange Offering (IEO). Despite its fast-booming, IEO is still less popular than notorious Initial Coin Offering (ICO). Just for comparison: since 2013, over 1,500 ICOs have been conducted, overpassing traditional crowdfunding mechanisms and becoming the most favorite method of raising capital. For those who are not very familiar with the concept, from the investor’s point of view, ICO consists in sending Ethereum, or any other cryptocurrency prescribed in the smart contract of the issuer, in exchange for newly created tokens of the project. Experts from BTCNEXT exchange explained the difference between IEOs and ICOs.
Unlike ICOs, where the smart contracts are written and audited by the developer, in case of IEOs, it is precisely the cryptocurrency exchange that is responsible for its development, management, and implementation. Thus, the fundraising campaign becomes more transparent and secure. Nevertheless, one should understand that nothing is perfect and crowdfunding mechanisms are not an exception – each one has its own advantages and disadvantages. Let’s take a closer look at recently emerged IEO and analyze its pros, relative to ICO.
What are the most important things you need to know about Initial Exchange Offerings?
First of all, it is a cryptocurrency exchange or exchanges that are responsible for the holding of an IEO. It means that trading platforms have to take care of developing the smart contract, conducting a marketing campaign, and being in charge of the security. Thus, a cryptocurrency exchange is the counter-party of an IEO, like the developer for an ICO.
Secondly, in order to form part of an IEO, investors will have to open an account within the exchange where the crowdfunding is taking place. Another feature of an IEO is that contributors send money directly to their exchange account and not to the smart contract, how it used to be.
In addition, during the Initial Exchange Offering, participants can purchase tokens from the exchange! It is possible because the issuers create all the tokens before the IEO actually takes place. It does not mean that cryptocurrency exchanges have total dominion over projects that plan to conduct an IEO, not least because the latter can negotiate different terms and conditions with the exchanges. It includes the percentage that goes to the exchange, marketing expenses, listing requirements, etc. Projects can also set a fixed price, at which tokens will be sold. In order to prevent price manipulation, issuers can set limits for a token cap per investor. Of course, it is not a unique regulation mechanism, we just want to show you an example of possible features.
Finally, projects that decide to conduct an IEO have to set a hard cap and a soft cap. It allows cryptocurrency exchanges to achieve higher efficiency and better performance. If the token economy is not accurate, then an IEO will fail before it even starts. A clear example of the inaccurate economy is surplus of released tokens.
What are the steps to participate in an Initial Exchange Offering?
Forming part of an IEO is a rather simple process than participating in an ICO. You can actually do it in 5 steps or even less:
- Double-check whether an IEO is actually going to be held. Many cryptocurrency projects still prefer ICOs over IEOs, so it’s crucial to check the type of crowdfunding mechanism which has been chosen by a company.
- Find out where an IEO will take place. Keep in mind that not every exchange is able to conduct an IEO on its platform. Nowadays, cryptocurrency exchanges require their clients to pass a Know Your Customer (KYC) procedure. Thus, it might take some time before you will be approved to participate in an IEO.
- Register. Sign up and get KYC approved on the exchange where an IEO will be conducted. This is your passport to participate in a crowdfunding campaign. Keep in mind that KYC requires some time and if you don’t pass the verification beforehand, there is a chance of losing the spot.
- Deposit. Have funds in your account in the currency that will be accepted in an IEO. It can be Ethereum, Bitcoin or any other cryptocurrency. There is no such thing as standard, so you need to know this in advance.
- Buy. Choose to order the desired tokens in advance or buy them at pre-IEO and main IEO sales.
Why an Initial Exchange Offering is an optimal solution for startups?
BTCNEXT experts claim that the pros of running an IEO are:
- It is easier for the project to be listed on an exchange. Normally this process takes months due to very tight listing procedures. Additionally, cryptocurrency exchanges may require a large Bitcoin or Ethereum fee.
- Easy access to the exchange’s user base. The larger the trading platform, the more potential customers it will have. It means less marketing costs and less time spent to capture them.
- Being backed up by a cryptocurrency exchange increases the credibility of the project. It is obvious as if the project results to be a fraudulent, crypto exchange will lose its reputation. Thus, investors do not have to fear scams, price manipulation, low security or phishing attempts. In case the founders decide to disappear, there is still a chance for the investor to sell off the tokens, of course, if there is any demand.
What does exchange win from conducting an IEO on their platform?
- Exchanges benefit by attracting new users to their platform. Keep in mind that there are thousands of users looking for potential investments, and if an IEO captures their attention, signing up for an exchange is not an obstacle. As a result, the exchange receives new deposits from investors and a new influx of users.
- High-quality projects and IEOs increase the reputation of an exchange. It is a great marketing tool to increase users’ trust in the platform.
- Finally, IEOs bring money to cryptocurrency exchanges in the form of fees. Do not forget that exchanges live off fees.
The growing number of IEOs could signal an end to the previous era of ICOs, and become the new method for startups to raise funds; a safer way of investing and faster road to be listed on the exchange.
BTCNEXT, a fast-growing spot and margin trading platform designed for both fresh and professional traders, also offers IEOs launchpad. They have completed their first IEO for Opiria, a large company, working with BMW, Nissan, Mercedes Benz, and Intel, in just several hours and collected 106,250.00 USD. During the next round, BTCNEXT collected 126,000.00 USD for Opiria. Next IEOs to take place at BTCNEXT are IEOs of Q DAO family stablecoins by Platinum Q DAO Engineering. These stablecoins are backed by Bitcoin (as well as another top 10 digital assets in the near future) and pegged to various national currencies, including USD (USDQ stablecoins) and KRW (KRWQ stablecoin).
It is important to mention that If you conduct an IEO on BTCNEXT exchange, you will receive the IEO module by Platinum Q DAO Engineering as a bonus. This IEO platform enables projects to easily accept crypto and fiat from investors, manage stages of fundraising and marketing campaigns, as well as process KYC/AML. The platform covers all the stages that fundraisings have and offers more than 1,000 supported currencies.
Moreover, BTCNEXT proves to be focused on 24/7 responsive customer service and seek to build trust relations with all of its users that may help a lot. For more information, visit their website and follow them on Twitter, Instagram, Telegram, Facebook, Medium, and LinkedIn.