The rise of IEOs is a fact. But what is an IEO? What is the difference with an ICO and how can I participate in an IEO myself?
Table of Contents
What is an IEO?
An Internal Exchange Offering (IEO) is an issuance of coins from a blockchain project. At Initial Coin Offerings (ICO), this issuance took place on the platform of the blockchain project itself. With an IEO, the issuance takes place on a cryptocurrency exchange. Some examples of well-known exchanges where IEOs take place are Binance, Bittrex, Huobi, KuCoin and BitMax.
One of the first exchanges to organize an IEO was Binance. Binance did this on a dedicated platform developed for IEOs, Binance Launchpad. Soon other exchanges followed Binance’s lead and came up with their own IEO platforms: Bittrex (International IEO), Huobi (Prime), KuCoin (Spotlight) and BitMax (Launchpad).
The difference between an IEO and ICO
A big difference between IEOs and ICOs is that IEOs are organized on a platform of an exchange. The blockchain project pays a listing fee and a percentage of the tokens sold to the exchange on which the IEO is held. In return, the exchange organizes the IEO, helps with marketing and lists the project’s token on the exchange after the IEO. In short, the cryptocurrency exchanges and blockchain projects are entering into a partnership to market the tokens of projects.
IEOs differ from ICOs in many ways. In the table below you can see at a glance the biggest and most important differences between the two forms of fundraising:
Advantages and disadvantages for investors
- Trust: One of the biggest advantages of IEOs over ICOs is trust in the blockchain project. Since the token sale now takes place on a (known) exchange, the project has already been thoroughly examined by this exchange. Besides being beneficial for future investors, it is also very important for the exchange itself. The exchange ties their name to the blockchain project and wants to make sure not to be associated with a ‘scam’ project.
- Security of exchange listing: In addition to confidence in the project and the state of affairs surrounding the IEO, the exchange listing also provides investors with security. In the past, it still wanted to prevent a project that had raised a lot of money, but in the end did not manage to be listed on one of the major exchanges. This ensured that the token was illiquid and in many cases investors did not achieve the returns they had expected in advance.
- Investor convenience: Finally, investors no longer need to create new accounts and go through the KYC/AML on the website of a blockchain project. This has all already taken place when the investor has created an account with the exchange on which the IEO is held. In the ICO era, this was necessary to participate in an ICO. IEOs therefore certainly contribute to investor-friendliness in blockchain startups.
Advantages and disadvantages for the blockchain projects
- Security IEO/ICO platform: IEOs are not only a favorable development for the exchanges. There are also many advantages to organizing an IEO for blockchain projects. They no longer have to worry about the security of their token selling platforms. The exchange on which the IEO is held is responsible for the smart contract of the IEO.
- Less administrative and operational hassle: In addition, blockchain projects no longer have to set up their own KYC/AML processes. This has all already happened the moment investors created an account with the exchange in question. During the ICO era, this often resulted in many disgruntled investors and long wait times.
- High costs associated with IEOs: The only downside for blockchain projects is that the costs of organizing an IEO for startups can be quite high. Despite the fact that the costs can be considerable, it remains a very favorable development. In the ICO era, many promising blockchain projects have fallen hard while organizing ICOs, because they were far from flawless. In the IEO construction, the exchanges can assist the blockchain projects in taking work that does not affect their core activities.
Advantages and disadvantages for the exchanges
- New source of income: With the launch of an IEO platform, exchanges create an additional source of income in addition to their buying and selling costs and ‘withdrawal’ costs.
- New investors: Organizing IEOs of well-known blockchain projects also creates new investors. Because the tokens of the project will initially be offered at one exchange, this will ensure that there are investors who will create an account with the relevant exchanges especially for this purpose.
- More demand for own token: Finally, organizing IEOs also creates a higher demand for the token from the exchanges themselves. To participate in an IEO, you as an investor need a certain amount of the token from the exchange to purchase the IEO token or to be eligible for the ‘lottery’ that takes place. The more tokens from the exchange you have in your wallet, the greater the chance that you will claim part of the offered IEO tokens.
How can I participate in an IEO?
Participating in an IEO is actually very simple. It is important that you have an account on the exchange where the IEO takes place. If you do not yet have an account on the aforementioned major exchanges, it is smart to change that now in view of the growing IEO market.
It is then smart to check with which cryptocurrency you can participate in the ICO. Often this is the token of the exchange itself. In the case of Binance this is Binance Coin (Bnb) and for KuCoin it is KuCoin Shares (Kcs).