Those familiar with the rise of Initial Coin Offerings (ICO) might have heard about the recent buzz surrounding the recent rise of Initial Exchange Offerings (IEO). In this article, we are going to discuss the rise of IEOs, as well as some of the advantages and disadvantages of IEO exchange so you can know whether or not it would be a good investment for your business.
So, what’s an IEO?
In simple terms, the Initial Exchange Offering (IEO) was formed from the basic concept of the ICO, but differs in a few key ways. First, with IEOs, contributors are centralized, and partner with established and reputable ‘cryptocurrency exchanges’ such as Binance or GDAX. Contributors must become users of the hosting exchange platform before they can sell tokens.
The exchange platform screens the team to ensure that the project aligns with their requirements. As a result, contributors are more protected from scammers because the exchange platform’s reputation is at risk.
Since both parties are invested in the offering, the exchange has no incentive to scam the user.
What’s the difference between ICOs and an IEOs?
IEOs have recently caught the attention of traders, project teams, and investors in response to some of the criticism regarding the decentralized nature of ICOs. Although ICOs and IEOs are very similar in nature, the two are different in certain ways.
The main difference between the two is that ICOs are completely open to the public, enabling anyone with a white paper the ability to launch an ICO and persuade investors to fund their company. IEO’s, on the other hand, grant users more autonomy than ICOs because in order to exchange tokens, users must partner with the exchange’s platform. In other words, ICOs depend on the developer to make sure the smart contract is valid, while IEOs adhere to the exchange’s requirements in order to launch a token sale.
Understandably, in the past year, ICOs started encountering issues with scammers and frauds seeking to exploit the opportunity for personal gain. Essential, scammers would capitalize on the opportunity to raise funds, and fail to follow through with their technology’s promises after the fact.
What are the advantages of IEOs?
A major advantage for IEOs is trust. Since each cryptocurrency exchange platform carefully reviews each project before launch, contributors trust that they are not scheming some elaborate scam or fraud. In addition, since the cryptocurrency exchange platform is a counterparty of the consumer, they have the right to pull the plug if they sense any suspicious activity hinting toward fraud at any time. Knowing this, scammers are less likely to go the IEO route because the likelihood of being caught is much higher.
Since the cryptocurrency exchange manages the consumer’s smart contract, they don’t have to worry as much about losing out on their investment as opposed to ICO consumers.
3. Less work for projects
The process of launching IEOs on exchange platforms is far less of a burden than compared to ICOs who do the majority of the work themselves. While the cryptocurrency exchange platform has to pay a fee for listing a percentage of their tokens, the exchange will ultimately benefit them in terms of marketing.
4. Beneficial for startups
As opposed to ICOs which largely benefit bigger corporations, IEOs give startups the opportunity to drive their business in the right direction. The reason behind this is because IEOs require a lower marketing budget than if they choose to go with an ICO. Also, since cryptocurrency exchanges have a broader customer base, consumers leverage their ability to receive more contributions.
What are the disadvantages of IEOs?
1. IEOs prices can be high for startups
Although IEOs seem like the sure route for any startup company, there is no denying that token sales can start at a high price. In fact, according to the latest cryptocurrency news, listing fees have the ability to reach up to 20 BTC, and exchanges can take up to a 10% cut from the tokens to give back to the fundraising companies.
2. Lack of ownership can be risky
One downside of partnering with a cryptocurrency exchange, is that IEO contributors lose a bit of their autonomy as opposed to ICOs.
3. You don’t actually own the tokens
Since cryptocurrency exchanges manage the private keys in partnerships, contributors don’t actually own the tokens.
4. Exchanges can be hacked
Even with the additional security of partnering with a cryptocurrency exchange as opposed to directly with investors in ICOs, there is always a chance for hackers to infiltrate the exchanges system and steal your tokens.
IEO legal advice from a specialist cryptocurrency firm
As one of the few specialized legal firms in the United States, our attorneys here at ICO Law Group offer a range of ICO legal services to guide your company every step of the way. Get a free consultation today.