Understanding Initial Exchange Offering (IEO)
An Initial Exchange Offering (IEO) is a fundraising method where cryptocurrency start-ups raise funds through a trading platform or exchange.
In contrast to an initial coin offering (ICO), where the company promotes its project on its website, an IEO takes place directly on a crypto exchange.
Rising from Regulatory Challenges
IEOs gained popularity after China banned ICOs at the end of 2017, leading the crypto industry to seek alternative ways to fund new businesses.
During an IEO, a start-up pays a fee to the exchange and offers a portion of the tokens sold to raise funds on the platform.
Once the IEO is completed, the tokens are listed on the exchange, which helps increase the company’s visibility among investors.
Unlike ICOs, where contributions are sent to smart contracts, participants in an IEO send their contributions through the platform hosting the IEO.
Elevating Transparency and Trust
Key cryptocurrency exchanges have embraced IEOs, with platforms like Binance Launchpad being among the first to launch IEO platforms, followed by other exchanges.
The main advantage of IEOs is the increased transparency and trust they offer.
Since a reputable exchange conducts the token sale, the risk of fraudulent activities and scams is reduced compared to ICOs.
Established platforms typically perform due diligence on projects before offering them to users.
Simplifying Token Issuance
Under an IEO, token issuers do not need to handle the security of the crowdsale themselves.
They also benefit from the exchange’s existing client base, which can generate greater investor interest.
Additionally, the exchange handles the Know Your Customer (KYC) and Anti-Money Laundering (AML) processes, relieving the token issuer of these responsibilities.
In many cases, exchanges also provide marketing assistance to promote the businesses conducting IEOs.
While IEOs are generally considered more credible than ICOs, they can involve higher start-up costs in exchange for increased safety and visibility.