Are ICOs Completely Losing the Game to IEOs?

With Initial Exchange Offerings (IEOs) rapidly emerging as a popular crypto fundraising scheme, here a look into where the ICO market is heading.

Since the beginning of 2019, the crypto funding terminology of Initial Exchange Offering (IEO) is buzzing all around the cryptocurrency market. IEO is quickly catching up as the next popular fundraising schemes with the ICO industry being largely plagued with scams and fraudulent players.

As the name suggests, Initial Exchange Offering is the method of selling crypto tokens over an exchange platform. Thus unlike ICOs which requires token issuers to directly approach investors, the exchange platform acts as an intermediary to between the token issuers and the investors.

In comparison to an ICO, IEO comes with its own set of advantages. Also, with an IEO the chances of token issuers scamming investors are less. This is because the onus lies on the exchange platform to verify the authenticity and genuineness of the token issuers as well as the investors.

Thus, IEOs are considered as a more genuine way of fundraising and the shift in the market trends are already visible. The IEO market boom has kicked off only this year in 2019. Since the beginning on 2019, a total of 23 IEOs have taken place raising over $180 million, as per the Bloomberg report.

Will IEOs Take Over ICOs?

So the most pertinent questions is that will the rapid emergence of IEOs cast a complete shadow on the ICO industry. Well, not really! While IEOs appear to have a regulatory edge over ICOs, the situation is certainly not very gloomy.

In fact, reports suggest that regulators from jurisdictions consider both IEO and ICOs to be the same. The regulators view the exchanges conducting IEOs as third-party intermediaries between the token issuers and the investors. Besides, each exchange takes some commission from the token issuers by receiving the project tokens. Thus, it is bound to attract regulatory attention.

Furthermore, some exchanges conducting IEOs push their own native tokens for fundraising. The exchanges also ask IEO token issuer to have a huge balance of the exchange’s native token in order to participate in the sale.

A securities lawyer Zach Fallon told Bloomberg that such a practice from the exchanges to sell their native doesn’t do well with the regulators. Fallon has previously worked with the U.S. SEC on ICO matters. Fallon notes that the new model will “take everything from an ICO and make it worse.”

On the other hand, Jeff Dorman, partner, and portfolio manager at Los Angeles-based Arca Funds, present a different viewpoint. He notes that involving exchange intermediaries in IEOs token sales violates the core ethos of decentralized fundraising. Norman noted:

The irony, of course, is that this is directly at odds with the decentralized ethos embedded in crypto, but this has been conveniently ignored as long as it’s working.

Furthermore, the fundamental principal of ICOs was to free crypto startups from the stranglehold of VC funds. But with IEOs the exchanges can very well act like VCs going in the long-run.

Some Startups Still Prefer ICO

So, despite the IEO market buzzing the crypto market, the possibility that ICOs will completely turn non-existential seems to be very less. Some smaller crypto companies still prefer the ICO mode of fundraising while selling their tokens only to a selected group of few investors.

An illustrative example is Toyken project, which plans to launch its native cryptocurrency ‘Toyken’ in the market by the next month of May. The project plans to conduct its token-sale through ICO with the business operation of B.A. Toys involves HODLing and stocking up toys and sell them in the market when their competitors go out of stock.

Thus some small and new crypto startups who don’t want much regulatory attention still prefer to raise funds through the ICO model by directly approaching the market investors.

Are ICOs Completely Losing the Game to IEOs? was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.

Publication date: 
04/20/2019 - 09:02