In 2017, against the backdrop of the rapid growth of the cryptocurrency market, the so-called ICOs were actively developing. The abbreviation stands for the Initial Coin Offering and implies attracting investors to blockchain projects through the sale of tokens before the official launch of the project in order to receive money for development. As planned, at the initial stage, tokens have a minimum cost. And after the launch, they will rise in price, and investors will be able to sell them 2-3 or even 10 times more expensive (depends on the success of the project).But the skeptical opinions of experts came true. In 2018, it turned out that the lion’s share of ICO projects was unprofitable. And more than 60% of them were not completed at all (they simply closed after the collection of investments). Given the lack of regulation, such actions are difficult to equate to fraud, so market participants are disappointed in such technology.
At the end of 2018, representatives of the cryptocurrency sector proposed an alternative – IEO. This is the name of the Initial Exchange Offering in which the sale of tokens is carried out through an exchange (for example, Binance, Coinbase, Kyrrex), which is the guarantor and intermediary of the transaction, charging a small commission for this. The difference between IEO and ICO is that the exchange team conducts a preliminary review of projects and selects only the most promising ideas.
IEO participants are trying to regain confidence in investments in blockchain projects through the Initial Coin Offering. Therefore, in the new format, money from investors does not go directly to the creators of the smart contract, but to the account on the exchange. Only after that they can be used in work. But first, all startups pass verification through their representatives. And the movement of funds received is controlled by exchanges. Data collection and strict control minimize the risk of fraud, but do not exclude formal bankruptcy and unsuccessful launch (no one is protected from this).
Today’s popular sites on which initial exchange offerings are held:
To become an investor, it is also necessary to go through verification and registration on the site and select a project from the available ones (a detailed description, team members, and statistics are also added there).
The main advantage of the new format of the initial coin offering is trust. Exchanges took on reputational risks, since in the event of failure, a flurry of negativity will primarily result in them. Therefore, projects are selected very strictly (according to insider information, more than 80% of projects do not pass control). Multilevel verification and the ability to track money or return it in case of force majeure increase the safety of investors. An important aspect is that exchanges control the IEO smart contract and conduct KYC / AML procedures. It is also convenient that listing after the launch of the blockchain project is carried out on the exchange automatically. It will be possible to buy and sell tokens instantly with the possibility of exchanging for fiat.
ICO “dies” – this is confirmed by the numbers. According to TokenData, in the first decade of 2019, the turnover there amounted to only 118 million dollars. And in IEO over the same period, the turnover was about 1 billion.
Many experts in the blockchain industry confirm that IEO can become the standard model for raising funds in the crypto space. But you should not expect such a boom as with the ICO in 2017. Since trust was still crushed in general.