What is the difference between IEO and ICO?
The alternative to ICO known as IEO (Initial Exchange offers, IEO) which is the primary exchange offer appeared in 2018. The main difference between the first method of attracting investments and the second one is that in the second case, stock markets actively participate in the fund-raising process, allowing only the most promising and viable projects to be listed.
This approach allows to get rid of several disadvantages of the ICO at once, such as: delayed listing of tokens at the end of the token sale and liquidity problems. When conducting an IEO, the tokens immediately appear on the exchange, and, as a rule, on the quite large one, which have a large base of verified investors. It is very important for the safety of the IEO that the seller of the token is not the project team, but the exchange that as you can see, is not the same.
Why did IEO appeared?
To answer this question, it is necessary to remember the recent past, in which the rapid growth of ICO popularity was accompanied by an equally intensive process of discrediting this investment attraction tool. Legal uncertainty, a huge number of fraudulent projects, the lack of effective mechanisms to protect the interests of investors make the society unconfident in the ICO. The mechanism of attracting investments of major stock exchanges will make tokensales more reliable.
The main role of the exchange is to initiate new projects, inspect their investment prospects, risks and success in general. Allowing the project to the IEO, the exchange takes the most part of risks, which increases investor confidence in the service.
What are the advantages of IEO?
The main advantage for the team of IEO creators is that immediately after the placement, the tokens will be available to a wide audience of exchange users, which can seriously reduce marketing costs.
Exchanges, in turn, provide themselves with an inflow of new clients, an increase in the number of transactions and commission. In addition, the holding of the IEO allows exchanges to make their customers exclusive offers on interesting tokens, which are not on any other trading platform.
Does IEO have any drawbacks?
Despite a number of obvious advantages over ICO, IEO has some disadvantages.
First, the project team needs to somehow reward the exchange for the placement. The conditions from site to site may vary, but in any case, it will be necessary to provide a clause about assignment of tokens or a percentage of the fee in the contract.
Secondly, the exchange will suffer from significant expenses. They will be resulted from providing of high quality expertise of investment projects and recruitment of new highly paid staff. It is impossible to save here in any case, because every failed project will cause serious reputational damage to the site.
Third, not any investor who liked the project can become a member of the IEO, but only a user of a particular platform who has passed the KYC procedure. Taking into account the number of existing major exchanges, this means that in order to participate in the most interesting and promising IEO, investors will have to register on more than half of the trading platforms.
Finally, it should be said that it is hard to estimate the IEO, because the opinions differ. On the one hand, almost everyone recognizes the legal weakness of the ICO and the advantages of the IEO. On the other hand, getting rid of legal uncertainty will quickly strengthen the positions of the ICO. But until that happens, the IEO seems to be a good, but temporary, alternative.
