An Initial Exchange Offering is the process of a startup raising funds via an established cryptocurrency exchange. It is the cryptocurrency exchange equivalent to an IPO. The cryptocurrency exchange is the middleman between investors and the startup holding the IEO. They earn fees from the funding phase, also called the presale. IEOs are like ICOs, but IEOs are only held on reputable cryptocurrency exchanges.
Initial Exchange Offering Platforms
Binance’s Launchpad is the most reputable Initial Exchange Offering Platform. Other popular IEO platforms are Gate.io, Bittrex IEO, Huobi Prime, and KuCoin Spotlight. The first IEO was held in January 2019 for BitTorrent. This project raised $7,1 million within 18 minutes via Binance’s Launchpad.
Advantages of IEOs
IEOs allow unknown startups to use the name of the exchange to promote their project. This increases awareness and the likelihood of attracting investors. For investors, it’s safer to invest in IEOs because the cryptocurrency exchange has done due diligence for them.
Disadvantages of IEOs
Cryptocurrency exchanges require projects to pay fees for ‘giving them the spotlight. Some exchanges charge a fixed fee, whilst others charge a percentage of the total revenue of the IEO. There is always the risk of pump and dump schemes on exchanges.
How does an Initial Exchange Offering work?
The cryptocurrency exchange that promotes the startup via an IEO will do due diligence about the startup before listing it. They will study the white paper, the business plan, and the tokenomics of the startup. If everything looks good they will enlist it and allow investors to invest in the IEO.
Are Initial Exchange Offerings legal?
Yes, but in most countries they are unregulated. The Securities and Exchange Committee warns investors to be cautious when investing in IEOs.
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