The primary difference between IEOs and ICOs is how the tokens of the project are sold to investors. In the case of ICOs, the tokens are directly sold to the investors without any third party interference and in IEOs, an exchange platform becomes the place where the tokens are sold. Initial Exchange Offerings (IEOs) are rapidly emerging as a popular crypto fundraising scheme while the ICO industry is seeing multiple scams and frauds. Since the beginning of 2019, IEOs had a good run in the first two quarters of the year. To understand this trend, we must understand the problems with ICOs and its ripple effects.
The ICO bull run proved to be particularly risky for people wanting to invest in new blockchain projects by buying the native tokens. The initial fundraising for the projects was done by teams mainly through token offerings and without any exchange platforms acting as intermediaries. It led to problems such as teams outright abandoning plans and disappearing with funds or people accidentally sending their funds to wrong wallet addresses. It was clear that ICOs had fundamental issues in the way they raised funds, which led to IEOs arriving on the scene to solve these problems.
IEOs offered two major advantages over ICOs:
- As exchanges want to build the credibility of their platform, the projects allowed to have a fundraiser on their platforms are likely to be legitimate because exchanges verify the authenticity of both the token issuers and the investors.
- Unlike ICOs, where interested participants have to make on-chain transactions with different wallets on different blockchains, in an IEO, a centralized exchange takes control. Users only need to have an account with the exchange and have funds deposited in the trusted wallet of the exchange to invest in any IEO.
However, IEOs are not without fault. Severe accusations have been made against the way IEOs are conducted and how exchanges dominate the supply side of the token offering to benefit themselves. There have been reported instances of IEOs lasting for mere seconds because bots bought tokens as soon as they launched on the exchange. This centralizes the control of the token price in the hands of a small number of people and increases the downside risk of early investors exiting out.
Despite all these problems, exchange offerings provide a safer alternative to ICOs and the market for IEOs is set to grow 3x by the end of this year compared to the market at the beginning of this year, as suggested by industry experts.
IEOs need to be more sophisticated and user-friendly than they are now to give equal opportunities to people who want to invest in blockchain projects. IEOs are indeed better than ICOs in terms of legitimacy and liquidity, still, this process needs to evolve for easier investing. For any skeptics out there, though, it seems that IEOs are here to stay.
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