Initial Coin Offering (ICO) dominated the fundraising at the early stage of the crypto and blockchain boom. However, ICOs have lost their appeal in recent years as many crypto projects are adopting its alternative, Initial Exchange Offering (IEO). IEO is a new form of fundraising for crypto projects where a crypto exchange oversees the sale of new tokens to raise funds for the crypto project. The exchange administers an IEO on behalf of the project owners/startup that is looking to raise funds in return for tokens on the exchange. Here token issuers are expected to pay a fee for the crypto exchange overseeing the sale of their new token.
IEO has been tipped to revolutionize fundraising for new crypto projects. The rise of IEO is attributed to the failures of ICOs, which are unregulated, and had many investors lose money in fraudulent projects/ scams. While many people thought Security Token Offerings (STOs) would fix the problem, most STOs remain constrained by slow and expensive processes and stifling regulations. IEOs programs come out as a win-win approach to address the fundraising challenges.
What are the benefits of IEO?
IEOs are beneficial to all the parties involved. First, the crypto project is subjected to a thorough vetting process to ensure its authenticity and practicality. The exchange specifically scrutinizes the project’s whitepaper to establish its economic viability, personnel, technology, and strategy. The exchanges’ motivation to promote only legit projects is driven by the need to protect their image. This makes IEO platforms more appealing to investors as they get some level of assurance from the exchange of the project’s legitimacy.
For the crypto project team, raising funds through an IEO platform means their project get more publicity, hence better fundraising outcome. Many people getting to know about the project means a higher probability of getting investors interested in the project. The token is also likely to rise in value as more people get interested in it.
How American companies can utilize foreign launchpads
The United States has not been a favorite destination for crypto and blockchain projects to raise money for their projects due to its highly regulated crypto environment. Hence, most crypto startups resort to raising money from crypto exchanges based abroad to advance the development of their projects.
Harmony Protocol, a San Francisco-based blockchain startup specializing in faster smart contracts, raised $5 million through an IEO on Binance in 2019. The money came from investors outside of the United States. The same year, BitTorrent, a U.S. file-sharing firm, conducted an IEO on Binance to raise funds for its BitTorrent token (BTT).
Top 5 places to start your alternative fundraising and why?
- Binance- Mostly preferred by massive projects. Many big crypto projects resort to Binance, the world’s biggest exchange by trading volume, to raise funds because of the potential to raise more money from the exchange’s large user base. However, the projects have to pay a higher fee to use the platform for their fundraising exploits.
- Kukoin- often referred to as “the people exchange”, Kukoin is preferred by those who target the mass market to raise funds. It’s also an easy-to-use platform, hence favorable to the non-tech population.
- ExMarkets- favored by SMEs with up to a US$10 million fundraising target. Offers the most competitive fees, and high exposure from its over 160,000 user community.
- OKEx- the Seychelles-based crypto exchange with a huge network of experienced crypto traders. It’s known for its professionalism backed by traditional financial markets.
- Shortex- a revolutionary crypto asset and fundraising platform to bring liquidity to the crypto market by facilitating fundraising. Shortex provides a huge market base for companies to raise funds, even though its withdrawal fee is considered one of the highest.
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