After the rise and fall of ICOs, a safer model for token sales is coming to reward early investors of new crypto projects.
What does an IEO work?
An IEO, also known as Initial Exchange Offering, is a coin offering conducted by a cryptocurrency exchange. The goal of such offerings is to raise funds on behalf of a startup company by offering their newly issued tokens.
How does it work?
Since an exchange is conducting the token sale for the startup company, the token issuers usually offer a fee and a percentage of their tokens as payment for the additional exposure.
In return, the tokens are sold on the platform and the coins are subsequently (after the conclusion of the sale) listed on the exchange.
How is an IEO different and better than an ICO?
Hosting an IEO adds additional safety as it addresses two key components that are often problematic with ICO’s, namely:
- The ability to buy and sell the tokens on an exchange after their initial sale
- Guaranteed popularity and exposure, since the exchange they are listed on, is incentivized to assist with the marketing process.
Just two years back, when ICO’s were increasing in popularity, coins were oftentimes sold with a promise that they would be added on exchanges. Of course, this was not the case with the vast majority of cases.
When investors buy tokens through an IEO, they are ensured that the exchange they are getting listed on has performed thorough prior research and believes in the future of the cryptocurrency. After all, no exchange would intentionally hurt the trust of their investors by hosting tokens with no real potential.
That being said, investors should always acknowledge the risks involved, and only trust coin listings from the world’s largest exchanges, since they have both the finances and manpower to run a complete check not only on the coin’s potential but also on the team that stands behind it.
Aside of that, when you choose to participate in an IEO, you will most likely have to go through a verification process (KYC and AML checks). Again, this depends on the exchange that they IEO is hosted on and acts as an added layer of protection, as it makes investing increasingly difficult for illicit buyers.