Skip The Pain Of Listings - Initial Exchange Offerings
Initial Exchange Offerings
Projects that issued utility tokens through initial coin offerings have always faced the issue of getting their tokens listed on an exchange. This meant that it was a disappointment for investors who thought they could derive some profit out of these tokens. Although it wasn't intended! Is there a way of arriving at a fine point which gives investors utility tokens but with a promise of being listed on an exchange? At the same time, can this listing also keep the tokens away from the scrutiny of regulatory bodies like the SEC?
The answer lies in Initial Exchange Offerings, commonly abbreviated as IEO.
What is an IEO?
The name is quite self-explanatory. As the name suggests, the token issue is conducted by a cryptocurrency exchange as opposed to the ICOs where the token issue is conducted by the start-up or the project that issues the tokens. This meant that the start-ups were raising funds under the authority and the brand umbrella of another legally established body, so they did not have to worry about the possible legal implications in case of any breach of regulation.
The commercial elements
As the token sale is conducted on an established crypto exchange, the company that issues tokens has to pay a listing fee to the exchange. In addition to that, they will also need to part with the percentage of tokens to be given to the exchange at the time of token sale.
The cost paid to the exchange in terms of both the listing fee and the token percentage is far less compared to the exorbitant fees that they will need to pay for listing their tokens on an exchange, and that too, with a considerable degree of uncertainty. The fees paid to the exchange not only help cover the initial cost of the set up of the exchange but also go towards helping the token issuer with marketing their tokens.
People who participate in the IEO do not pay a smart contract as to how they would in an ICO. However, it is mandatory for them to have an account with the exchange that lists the tokens. This alone will let them buy the tokens issued by the exchange, and all they need to do is fund their exchange wallets with these coins and use those funds to buy the tokens.
It is often said that the proof is not in the recipe but the pudding! An IEO cannot be considered successful if it does not raise funds nor if it does not find the approval of leading names in the crypto exchange industry.
Binance, one of the first names that come to mind when we talk about crypto exchanges, has launched its own IEO platform called Binance Launchpad. Therefore, IEOs have received the approval of leading global brands.
One of the first IEOs to be launched was for BitTorrent after having been acquired by TRON. The funds raised through IEO hit the crowd sale hard cap of a staggering $7.2 million in less than 15 minutes. If you think that was fantastic, the second IEO by Binance Launchpad - Fetch.AI hit its hard cap of $6 million in just 22 seconds!
Advantages brought by IEOs
The magnitude of success of IEOs can only be brought about because of a huge range of advantages that they bring along.
The first and foremost advantage that IEOs bring along with the reputed exchanges that they are tied up with is the trust factor. As the crowd sale is conducted on an exchange with an already established magnitude of reputation, it becomes easy for the project to win the trust of its customers.
This does a great deal in eliminating the instances of scams that were responsible for the tarnishing of crypto investments because of scammy ICOs. Exchanges also take care to perform their due diligence because they do not want to put their reputation at stake by listing dubious projects. There have been instances where refuted exchanges have gone to cancel the crowd to see if certain projects just hours before the commencement of the sale only because it does not fall in line with the interests and philosophies of the exchange.
When the exchange takes care of the token issue well, they are responsible for the smart contracts that facilitate the sale. It means that the project does not have to essentially worry about the KYC/AML formalities. The exchange takes care of this aspect, and the project owners can heave a sigh of relief. After all, it would be better for them to concentrate on the project and the token rather than distract themselves with these auxiliary activities.
One of the greatest challenges in any ICO is getting the token listed on an exchange. The token sales are conducted with this element of uncertainty, and investors are willing to take the risk because they have a certain utility. However, in an IEO, you can be assured that your token will definitely be listed on the exchange. There is, however, a hefty fee that needs to be paid for this element of certainty. Listing fees can go as high as 20 bitcoins, and the exchange might sometimes take up 10% of the total tokens issued. However, a lot of projects look at this feat as a profitable trade-off because of the advantages that they get on account of the exchange listing them directly.
The process of participation
Crypto technology and blockchain in themselves are relatively new in the tech space. IEOs can be considered to be even newer - not many IEO exist in the market now. On one side, investors genuinely interested in ‘projects’ go after the IEOs and find out the exchange where they are listed. Some Investors who trust the exchange more than the project, and they find out if there are any new projects listed on their exchange.
One the decision on where to invest, they will have to complete their KYC/AML formalities with the exchange and fund their wallets. Once the process is completed, they will be able to buy tokens directly from the exchange.
For people who would like to avoid the pain of establishing regulation, but at the same time, would also like to get a trust-worthy start to their crowdfunding campaign, IEOs present a perfect solution. Should you have a requirement to create an IEO, you can get in touch with some of the best blockchain development companies. They will take care to create custom and launch your IEO.