29 Mar 2019

At this point in 2019, we can probably all agree that the ICO market is dead. There are many reasons for this, ranging from scams to absolute unusability of tokens issued by these projects. Creating an ERC-20 token is easy, but making it usable is a whole another story.

At the height of the crypto bull run in 2017 and early 2018, investors were backing every single project with millions of dollars regardless of its sustainability. In fact, ICOs were the major part of the 2017 crypto hype. Clearly, this model is not sustainable as many projects simply collapsed and the teams behind them did not provide a product, let alone build a sustainable business.

But lately, it seems that ICOs are making a comeback in the form of IEOs or Initial Exchange Offerings. Think of the IEO as ICO 2.0.

What are IEOs?

IEO or Initial Exchange Offering is a new way of crowdfunding blockchain projects. While there are similarities between ICOs and IEOs, there are also significant differences between them.

As the name suggests IEOs are held entirely on cryptocurrency exchanges. This helps with the visibility of the project as exchanges already have a significant number of users. The projects also get listed on the exchange right after a successful crowdfunding campaign which was another issue with ICOs as many tokens did not get listed on a single exchange or had very low liquidity.

Pre-vetting projects

One of the main issues of ICOs was trust, because many of the projects were scams. Given that the IEO is being held entirely on an exchange, the barrier for entry is relatively high compared to ICOs where anyone could make a smart contract and conduct a crowdsale. This means that potential projects are heavily vetted by the exchanges before they are offered to their users.

Cryptocurrency exchanges are regulated and have a certain reputation to uphold. It is in their best interest to only let the top projects get onboard. An example of this is when a cryptocurrency exchange canceled the RAID IEO when a key partnership between RAID and OP.GG was broken off.

All of the KYC (know your customer) and AML (anti-money laundering) procedures are also taken care of by the exchanges, which reduces the amount of work (and the cost associated) for the blockchain projects.

Is it all worth it?

So, with all of that in mind - are IEOs something to look forward to in the future or just a refreshed look of ICOs with many of the same flaws?

While IEO addresses some of the ICO drawbacks, like trust, it still keeps a lot of them. IEO doesn't solve the problem of token usability. It also does not address pump-and-dump schemes.

Some of the projects also don't need crowdfunding and are conducting an IEO strictly because of the visibility of the project and marketing.

One of these projects was BitTorrent which held an IEO on the Binance exchange. BitTorrent was bought by TRON for 150 million dollars. You might ask yourself why exactly is BitTorrent raising funds when TRON has a market cap of 1.5 billion dollars.

Grain of salt

One thing is clear by now. Cryptocurrency exchanges are all jumping on this new trend. For now many of the exchanges have already upgraded their platforms for IEOs, like Binance Launchpad, Bittrex International IEO, Huobi Prime, and KuCoin Spotlight.

Exchanges are hoping to attract new users to their platforms, extract funds from existing customers and raise the price of their native tokens as many of the IEOs are funded exclusively with native tokens of exchanges, like BNB (the Binance token).

It is important to know that these projects are still ICOs although the crowdsale is now held on a crypto exchange and bear the same risks as ICOs. Take this new trend with a grain of salt.