Brief content

An IEO is often held when a new crypto project wants to launch its cryptocurrency or blockchain, but requires significant investment capital.

An IEO differs from an Initial Coin Offering (ICO) in that fundraising is made possible through a crypto exchange, namely Binance. Projects can raise funds with the exchange's client base and start trading their token soon after.

Introduction

Thousands of cryptocurrency and blockchain projects exist or are under development. Most projects require some kind of financial incentive to keep developers and contributors involved. Not all projects can rely on donations or contributions from generous asset owners. More often than not, sooner or later external financing will be needed.

There are many different ways for developers to raise capital. Attempts to obtain funding from venture capitalists (VCs) can take a long time, with little or no results. Mining a project's coins before launch, known as pre-mining, and storing them in a treasury is also possible, but this method is often criticized by the community.

Choosing an IEO can often be an interesting option if the developer has a plan of action and is committed to realizing the vision of the project.

What is an IEO?

As the name suggests, an Initial Exchange Offering (IEO) involves using a cryptocurrency exchange to raise funds for a new project. Assets are usually traded on these platforms, but this happens only after developers have raised money to launch their projects.

With the help of IEOs, potential investors can buy these assets before they appear on the market. With an exchange that facilitates the sale of tokens, registered users who have provided their KYC information will be able to purchase tokens before they start trading on the open market.

Since the IEO is facilitated by an exchange, startups that choose this route must be serious about their action plan. In most cases, an IEO offer is carefully considered by the exchange that conducts it. In a way, exchanges put their reputations on the line for every IEO they decide to offer.

How is IEO organized?

Although blockchain technology is relatively new, there are thousands of crypto startups and companies. Many of them compete to attract potential investors through ICOs or IEOs.

When the developers of a cryptocurrency project decide that they want to organize an IEO, there is a complex procedure to be followed before the first dollar can be raised.

Several requirements must be met for the project team. Having a solid business model, experienced team members, a viable use case for the technology, and providing a whitepaper are critical. Organization of the IEO is a kind of statement about the project's commitment to long-term success.

In addition, they need to determine whether their IPO will have a soft cap and a hard cap. A hard cap guarantees that no more than a certain amount of money can be invested. A soft cap sets an initial target to be achieved, but allows for more investment to be injected later.

Once these decisions are made, it's time to choose an exchange platform for the IEO. Binance Launchpad has helped dozens of projects meet their investment capital needs. Some examples include BitTorrent (BTT), Band Protocol (BAND), Axie Infinity (AXS), Alpha Finance Lab (ALPHA), and WazirX (WRX). Other exchanges have also created their own IEO platforms, each with advantages, requirements and potential drawbacks.

Why blockchain projects conduct IEOs

Raising funds for new crypto or blockchain projects can be quite difficult. As in any other industry, there is very strong competition trying to attract investors. Not everyone manages to successfully attract investment capital in traditional ways.

An IEO can be beneficial because it is suitable for existing cryptocurrency holders. Given that it is conducted by an exchange, this significantly increases the credibility of the fundraising project. After all, an exchange puts its reputation at risk by facilitating an IEO. Even so, everyone should do their own due diligence before making any financial commitments.

For projects that want to raise money through the exchange, IEO is a reliable option. Most IEO coins sell very quickly, depending on the project's vision and use cases. The project token will also be added to the exchange after the end of the sale.

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IEOs vs. ICOs

On paper, the concept of an IEO may seem similar to an ICO. During the Ethereum ICO boom in 2017-2018, ICOs were held every day. Many projects have successfully raised millions of dollars, although there have also been many fraudulent proposals. Since there was no one to openly audit ICOs, the concept eventually evolved into IEOs, which many consider more reliable. Many ICOs have been found to violate US securities laws, leading to various lawsuits and refunds to investors.

Participating in an ICO carried much more risk. Investors had to send Bitcoin or Ethereum to a smart contract or website and hope that they would receive tokens. Anyone with a basic knowledge of smart contracts and web development skills could build a shiny website with a promising roadmap and start collecting money. This was far from ideal and carried a huge risk for those who invested in ICOs.

IEOs greatly reduce these risks. Investors send money through exchange wallets, not directly to the project. Dishonest projects or teams with little business sense will also not be able to conduct a successful IEO due to very strict requirements.

In addition, IEOs have lower risks and greater flexibility compared to ICOs. Tokens are guaranteed to be added to the exchange organizing the sale. This makes it easier for investors to exit their position if they feel the need to do so.

IEO Risks and Opportunities

Although every IEO is vetted by the exchange, no investment is without risk. It is possible that the fundraising project will not be able to realize its vision. This will possibly affect the price of the token, regardless of its value at the time of the IEO.

With that said, IEOs can also provide favorable investment opportunities. Being able to buy tokens in advance knowing they will be listed in markets with good liquidity can create some opportunities. However, not all IEO tokens will increase in price once trading begins.

Final thoughts

The lower frequency of IEOs has helped weed out some of the less attractive projects in the cryptocurrency and blockchain space. However, neither method is foolproof, but it looks like IEO is at least on the right track.

The fact that IEOs exist does not mean that everyone should invest in these offerings. It is recommended that you always do your own due diligence, regardless of how companies and projects are looking to raise funds. Investing in IEOs has its advantages, but the risks cannot be ignored.