Initial Exchange Offerings vs Initial Coin Offerings: IEO and ICO Comparison
Learn The Difference: ICO Vs. IEO
At this point, most people in the crypto space are aware of the ICO model, its rise in 2017, when countless new coins emerged, as well as their downfall in 2018, when the bear market struck. During their relatively short time, ICOs managed to raise billions of dollars, bringing the total crypto market cap to over $800 billion, before it all went down.
However, in light of ICOs approaching extinction, several other models found their chance to take the stage and shine. For example, there are STOs, which are security token sales, but also IEOs, or Initial Exchange Offerings, which are awakening interest in investors as well. With that in mind, let’s take a look at what IEOs are, and how are they different than ICOs?
What Is IEO?
As mentioned, IEOs are Initial Exchange Offerings. Their biggest difference from ICOs lies in the fact that they do not hold token sales open to the public. In other words, only those who actively use an exchange holding the sale can participate, while ICOs allowed pretty much anyone to buy new coins by simply sending funds to the host’s address.
Simply put, to enter a token sale, you need to have an account on an exchange which is hosting it. That also means that you need to have funds in your account, and in some cases — if the exchange has its own native token — participants need to obtain that specific coin in order to participate. The best example of this is Binance, which holds token sales on Binance Launchpad and only allows participants to buy new tokens via the exchange’s own Binance Coin (BNB).
How Is IEO Better Than ICO?
Of course, by being open to the public instead of only allowing a certain group to participate, it is theoretically possible for ICOs to raise more money than IEOs. However, that does not come without risk, as ICOs can also be held by scammers who are looking to trick investors out of their money.
A flood of fraudulent ICOs is actually one of the reasons why the model is all but abandoned these days.
Meanwhile, the IEOs are often held on trusted and reputable exchanges, such as Binance itself. This is already the largest exchange by trading volume in the world, meaning that it enjoys a massive amount of trust. As such, this, as well as many other exchanges, are in a perfect situation to hold trusted token sales, after performing the necessary research and concluding that the project they are promoting is legitimate.
This is what makes IEOs better and more secure than ICOs, as ICOs had no trusted third parties to monitor them. Anyone was able to create a new coin and hold an ICO, with the only obstacle being the necessity to come up with a white paper that can persuade investors to send them the money.
The two do share some similarities, such as the fact that they are both based on IPOs (Initial Public Offerings), they are still two very different models now. In order to hold an IEO, for example, the team developing the new token needs to comply with all of the requirements listed by the exchange that will host the token sale. This is a rule that cannot be bypassed, as the exchange’s top priority is to protect its users, as well as its own reputation.
This is also the reason why exchanges will not enter a scam deal, as the scam will be over, users will be tricked out of their money, and the exchange will be ruined. The word will spread, and no one will come to use it anymore. Because of this, it is in the exchange’s best interest to make sure that the project holding the token sale is real, and that it actually has potential.
As for the IEO participants, they trust in their exchange’s judgment, and they can invest without having to worry that the project might turn out to be a scam. This also allows them to be among the early investors and make a profit once the token’s value starts to increase. Meanwhile, the project’s developers do not have to worry about operational hassles, promotions, liquidity, and alike.
The model holds a lot of potentials, and as long as the developers do a good job with their coins, and exchange conduct proper research — everyone can get what they want. Investors can invest in new coins in a safe environment, the exchange will get new users willing to invest and trade, while the project itself will receive attention and the necessary funding.