At A Glance – Initial Exchange Offering (IEO)

Could IEOs cause the next cryptocurrency boom?

Raising the funds to set up a cryptocurrency isn’t easy, especially as the market is still maturing. One tactic used by token issuers is to crowdfund through an Initial Coin Offering (ICO). However, in 2017, China issued an ICO ban that prompted other financial authorities to consider stricter regulations. This, alongside questions over ICO legitimacy, has led to an alternative option: Initial Exchange Offerings (IEOs).

An IEO is a fundraising event hosted by a cryptocurrency exchange instead of the token issuer. The token issuer goes through a verification process before they are accepted, and must pay a listing fee. Following the IEO, the exchange automatically lists the token.

While the DIY approach of an ICO is arguably cheaper, there are multiple benefits to IEOs that make them worth the cost. Firstly, the exchange is responsible for the smart contracts and security of the initial offering. At the end of the sale, the exchange takes a percentage of the tokens, which incentivises it to help the issuer’s marketing efforts.

IEOs have already seen notable success. Earlier this year, Fetch.AI released a token on Binance Launchpad which sold out in 22 seconds, raising $6m and positioning it as one to watch in the blockchain and AI space. It’s little wonder that more cryptocurrency exchanges – Bittrox, Huobi, and KuCoin to name a few – are creating their own IEO platforms.

While they are still relatively rare, IEOs present a promising funding alternative for up-and-coming cryptocurrencies. By actively involving exchanges with reputations to uphold, IEOs could increase confidence and bring more trust to tokens.

We explore a new tech term each week in our free newsletter. Sign up here