When it comes to fundraising, quite some number of projects and companies have chosen the classic route of Initial Public Offerings commonly abbreviated as IPO. For a considerable length of time, IPO was considered as the de facto standard for fundraising. With the advent of cryptocurrency and blockchain, the innovation ushered the new method of fundraising called the Initial Coin Offering, ICO in short.
Initial Coin Offerings
ICOs managed to garner a lot of attention and redefined the way in which fundraising was looked at by projects and crypto companies. However, the fad-factor, the lack of regulatory frameworks and above all, malicious individuals looking at ICOs and a great opportunity to swindle money made them lose their luster and attractiveness.
Security Token Offerings
Patching the misgivings of ICOs, the Security Token Offerings or the STOs were introduced. STOs has the word security in it, and the very existence of the word ensures that the offering is in compliance with the regulatory requirements of bodies like the Securities and Exchanges Commission (SEC). This association brought the STOs under the scanners of the Securities & Exchanges Commission, and has greatly reduced the instances of scams. However, there was a cost involved in the legal procedures to establish compliance, and a limitation of the number of investors was also imposed because of the regulations. This decelerated STOs from get the flying start it was supposed to!
Why Initial Exchange Offering?
It is important to bring together the convenience of an ICO and the security of an STO. The onus of establishing ‘security’ by validating and the investors the companies fell on the exchange. This would mean that if an exchange lists a token, both the company offering the token and the people who buy the token are verified and validated by the exchange.
Initial Exchange Offerings or IEO is the answer that the crypto investors and enthusiasts were looking for. This is the process by which a token that represents utility in a company gets listed on an established exchange. The exchange already has quite a lot of activity happening, and this ensures that the token that is listed gets its visibility among investors right on the first day. Also, the exchange takes care to evaluate the company and the investors, the chances of fraud are quite less.
Once the initial sale is over and the hard cap is achieved, the tokens can be listed right on the exchange to be traded for crypto or fiat currency.
IEOs reduce the chances of scams and at the same time, keep the cost of establishing compliance out of the picture. This seems like a equally lucrative offering for both companies and investors. It has to be agreed that the exchanges charge a fee for listing the token. In addition to the listing charge, exchanges might reserve for themselves a set of tokens listed initially. Even while considering these factors, IEOs are surely a profitable and easy option for your group project to get funded.
Examples of Successful IEOs
Binance pioneered the concept of IEOs, and the model has been adopted by a lot of exchanges including Bittrex, Huobi, Kucoin, and OKEX.
The success of IEOs is exemplified in the instances of them raising funds beyond what was expected.
BitTorrent raised its hard cap of $7.2 million in minutes. Only 6% of the tokens were made available to the investors. The tokens were built on the TRON blockchain. BitTorrent is an established peer-to-peer sharing engine, and it goes in line with the central philosophy of cryptocurrencies and blockchain - decentralization!
Fetch.ai, a company that works on artificial intelligence and machine, learning raised its hard cap of $6 million in a few seconds! The tokens run on Ethereum blockchain and had over 11% of private sale allocation.
Experts of the crypto industry consider IEO to be more of an evolution than a revolution. IEO simply replicates the structure of the already existing methods of capital raising. However, the numbers are expected to grow for IEOs, both in terms of value and number of companies that choose them of ICOs.
IEOs might not have created much impact as ICOs in terms of getting the initial fillip and the big numbers. While the ease of an ICO is an advantage, aspects like security and listing the token on an established exchange put IEOs on the top of the podium. It can only be expected that the IEOs will get the momentum that they deserve in the near future, and it will not be a surprise to see IEO becoming the default method of raising funds.