IEO, IFO, IAO, ICO — Token Issuing Considerations
Or Initial Exchange Offering, means a project gets listed on an exchange directly without going through an ICO. We see more of these types of token issuing in countries where ICOs are restricted.
There is a fundamental problem with IEOs, though. Namely, a high percentage of coins are held by a small number of people.
After listing on an exchange, if the price goes up, then a small number of people would have made far more profit than the rest. If the price goes down, that means the small number of holders are selling heavily (potentially taking profit or stop-loss), and all the new investors (buyers) are at a loss. Either way, a small number of people benefit at the expense of a large number of retail investors.
The second problem with a high concentration of coins in the hands of the few is that it is quite easy to control or manipulate the price of the coin by the few large holders. For this reason, we advise people not to invest in coins where circulation supply is small and not evenly distributed.
In the extreme case where the projects didn’t even do a private sale, all the coins are held by the project team. An IEO is a way for the project team to sell their coins at variable prices.
For the above reasons, we (Binance) are hesitant when it comes to listing IEO coins. There seems to be no good solution to this problem other than giving a large chunk of coins to the exchange ahead of time and selling them at a fixed price, which essentially becomes an ICO.
Alas, most teams doing IEOs view themselves as not having any other choice. IEO is an example where regulatory restrictions on ICOs doesn’t necessarily protect retail investors. Instead, it only makes things worse for them.
Honestly, other than a limited few forks which are genuinely trying to improve upon the bitcoin protocol, most forks are… reverse scams. They leverage human greed to get freebies: “Let me give you something (that isn’t worth any value) for free, and if enough people receive it, and start to trade it, then it may suddenly have some value, for a short while.”
Exchanges are “forced” to support them or risk users moving coins to other exchanges who do. As exchanges begin to support them, they increase in “liquidity/price”. This becomes an easy way to force exchanges to list your coin, for a while at least. But I believe this period has passed.
The solution? Just wait till there are 1,000 useless forks, so much that any individual or even an exchange will not be able to install that many wallets. Most of the prices will be at or near 0, and users will stop asking for forked coins (candies as they are called in China). Luckily, I think we are finally getting there.
Initial Airdrop Offering is similar to IFO in some ways, but are more flexible in the way they distributed the initial coins. Historically, this created problems for users who store their coins on exchanges, missing out on the airdrops. But Binance has changed that. Binance can work with airdrop teams to ensure users on Binance get the same airdrop as any regular user. In fact, it is easier for the user as they don’t have to install any new wallets to receive the airdrop.
If you plan to do an IAO, be sure to contact the big exchanges first. If you don’t, you may lose a few priority points when you request to list your coin with us.
I believe ICOs are still the best way to raise funds. In fact, it is so good that I cannot imagine why any decent project would still seek traditional VC money. All the smart VCs are now investing in ICOs, even the top names in the business.
There are a few issues with ICOs too.
First, ICOs are restricted in a few countries. This creates problems if you happen to live in one of them. But, if you wish to do an ICO, accepting money from thousands of investors, the project should be important enough for you to trade off some less important things in life, such as where you live, or even your citizenship. If you are not ready to make this trade-off, don’t do an ICO.
For those raising money, there are a few other tips; you don’t want your token to be considered a security. Remove any words related to shares or dividends from your white paper, and structure your token utility carefully. Get a lawyer to do a Howey Test and issue an opinion for you. This may just save you some day. Be sure to seek your own legal advice before conducting an ICO.
Currently, I recommend selling no less than 30%, and no more than 70% of your tokens to the public. Too little, you are susceptible to hoarding and price manipulation; too much, people will worry the team is cashing out and will no longer be incentivized.
Hope this article helped realize a few points that you haven’t thought about before. As far as listing on the exchange goes, we still prefer coins that went through an ICO, especially those accepting BNB during their ICO.