What are Initial Exchange Offerings (and Why They Are So Successful)

  • June 17, 2019
  • ICO, IEO

If 2017 was the year of initial coin offerings (ICO), 2019’s ought to be the year of initial exchange offerings (IEO).

Most cryptocurrency projects who fundraised by means of an IEO have seen their token prices soar, with investors seeing anywhere between 2-10x returns for most IEO’s that have launched on popular exchanges.

For example, BitTorrent (BTT) launched on Binance with an issuing price of 0.00012 USD per token. Today, it’s worth 0.0012 USD, a 10x increase.

The returns we’re seeing right now are very similar to the returns we saw back in 2017, when ICO’s made crypto investors incredibly wealthy.

We covered this in a prior article, and discovered that if you had invested $1K in every ICO we featured in 2017, it would’ve generated returns of $51,396.

For initial exchange offerings (IEO), we’ve hit 2019 off in a very similar vibe – both in terms of its popularity and the returns it generated for crypto investors.

What are Initial Exchange Offerings (IEO)?

what are initial exchange offerings?

So what is an IEO?

Simply put, an initial exchange offering (IEO) in crypto layman terms is a token sale organized and conducted on an exchange.

When a crypto project is seeking for means to raise funds, one possibility is to conduct a token sale – whereby newly minted tokens are issued and sold to interested parties and investors.

In the case of an IEO, an exchange like Binance would take over the token sale process and investors would invest into the token sale directly via the exchange platform.

This would be akin to the traditional equities market where corporations looking to go public would work with large financial institutions as underwriters.

This differs from an initial coin offering (ICO) where a token sale is usually conducted directly by the projects themselves, rather than having an exchange do it for them.

Why Have Initial Exchange Offerings (IEO) Been So Successful?

Most IEO’s on popular exchanges have been an incredible success for crypto investors.

For example, BitTorrent (BTT) as mentioned above was a 10x return for investors.

Fetch.AI (FET) was an almost 4x increase upon listing on Binance after its IEO, and is still up about 2.5x from its ICO price today.

Matic Network (MATIC) also enjoyed 10x returns shortly after it was listed on Binance post-IEO.

These are just a few select examples but the point is, most IEO’s have generated very lucrative returns for IEO investors.

We can partially attribute this success to a few key improvements that initial exchange offerings (IEO) have over initial coin offerings (ICO):

The IEOs are Vetted by Exchanges

One of the biggest advantages of IEO’s over ICO’s is that the projects have already been vetted and analyzed by the exchanges themselves.

When an exchange agrees to conduct an IEO, there’s a lot of branding risk for the exchange because listing a scam/low quality project can do serious harm to the trust that users have on the exchange.

Thus, you can ensure any credible exchanges will maintain strict listing standards and perform due diligence in making sure there aren’t any scam or low quality projects that go through its token listing platform.

Back in the ICO phase, trust and quality were a huge issue for crypto investors. There were simply too many projects that conducted an ICO to exit scam or just didn’t execute as well as they had marketed it.

IEO’s have essentially converted this issue into a benefit, because credible exchanges have basically vetted and handpicked some of the best projects for you to invest in.

For exchanges, the quality of the project is extremely important to them.

We saw this in the case of Bittrex when they cancelled the IEO of Raid after Raid had notified them of a partnership cancellation with OP.GG just before the launch of the IEO.ย 

Bittrex felt like the partnership with OP.GG was too important for the project and without it, the quality of the project is no longer on par with their listing standards.

It’s kinda like having Binance tell you, “Hey, we’ve looked at a hundred different projects – here’s a couple we think that really stands out from the rest. Take your pick.”

Tokens from an IEO are more Liquid

Another major advantage of conducting an IEO over an ICO is that tokens tend to be more liquid because the projects get 100% listed on the exchange they conducted an IEO on.

From what I’ve seen, many crypto investors tend to underestimate the impacts of a liquid token – this is something you should absolutely price in when gauging the risk of an ICO or an IEO.

Take for example, Sparkster (SPRK), a project that conducted an ICO back in mid 2018.

Guess what? They didn’t list on an exchange until one year later on June 14, 2019 –ย and their token price dropped 7.5x from its ICO price the moment it got listed.

It didn’t even get any better afterwards! In fact, it’s continued falling since and is currently 15x below its original 15c ICO price.

But anyways, you can just imagine how much greener the grass is when the token has a guaranteed listing on an exchange like Binance.

You’ll have a lot more traders and a lot more trading volume, that’s for sure.

IEOs are more Accessible than ICOs

The last benefit is how accessible and easy it is to invest into an IEO compared to an ICO.

Not only do you skip the process of having to do a KYC for every token sale you’re interested in, but the project will also likely attract more crypto investors as a result of how easy it is to invest into the token sale.

This is very similar to the gaming space prior to Steam when every single had its own download launcher.

You’d have to make a new account for every game, download hundreds of different download launchers, and have millions of different shortcut icons on your desktop.

Steam came in with a centralized platform that helped attract more users for game developers by bringing in more exposure and enhancing the overall user experience.

An IEO is quite similar because you don’t have to go through a KYC/account set up for each token sale and you get the extra exposure of an exchange like Binance telling the world you’re having a token sale.

More investors in a token sale means more demand for a token, which likely means higher opening prices post IEO and higher returns.

Are IEOs Here to Stay?

For the crypto investors who had invested vigorously into ICOs back in 2017, there’d inevitably be a lot of doubts about whether IEOs will be the future of crypto.

After all, many of them suffered huge losses in 2018 when the crypto projects failed to execute and the ICO space began dying down.

Although I can’t say with certainty whether IEOs will remain for a long time, one thing’s for sure: the same thing won’t happen with IEOs the way it happened with ICOs.

The reason ICOs melted down in 2018 were mainly due to the reasons we had mentioned above, with trust, quality, liquidity, and accessibility.

Well, mainly more on the trust and quality factor.

Many ICOs were projects that didn’t even have a prototype to show, and with nothing but a whitepaper, were able to fundraise millions of dollars for their ideas that might not even have a proof of concept yet.

Ultimately, the ending result was a countless list of scam projects and low quality products that led to the fall of ICOs.

For IEOs, we’re at least sure this isn’t going to happen because IEOs on credible exchanges will already be QA’d and audited by the exchanges themselves to ensure their reputation stays.

For this reason alone, I think it’s worth betting that IEOs have a good chance of staying for the foreseeable future.

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