“Fundraising on the blockchain is one of the main applications for crypto. That’s very important for this industry to grow; we got to help entrepreneurs who build things in our industry.”
So said Changpeng Zhao, Binance’s CEO, who may have now begun a trend that some are calling Initial Exchange Offerings (IEOs).
Our team is currently considering the usage of exchange to administrate and monitor the crowdfunding process of evedo. Understanding the difference between ICO and IEO is crucial. And here we are going to explain why.
Soon we will announce which exchange(s) we will be partnering with. So, stay tuned. The whole process will be further discussed in our growing Telegram channel.
But what is exactly an IEO?
Simply put, unlike an ICO (initial coin offering), an IEO (initial exchange offering) is not open to the public. You’ll have to be a user of the hosting exchange to participate in the token sale. While an ICO allows any contributors to buy the token for sale by sending funds into a specific address, an IEO requires contributors/users to buy the token by using the exchange’s accounts.
What is the difference between ICO and IEO?
The biggest problem with ICOs (especially in the 2018) was that that they are not monitored by any third parties. Basically, anyone can launch an ICO, as long as they have a white paper to convince investors to put funds into your company.
On the other hand, an IEO is a very different model. While both ICOs and IEOs share the rationale of an initial public offering (IPO), in an IEO, the exchange becomes an administrator.
To conduct an IEO, the project team must meet and comply with the exchange’s requirements in order to launch the token sale. Contributors are, therefore, protected by the exchange.
The exchange is risking their credibility when doing IEOs, since it has no control over the IEO project team’s operation and product delivery as promised in the latter’s white paper. To maintain trust with its customers, the exchange must carry out a comprehensive assessment of the project before launching the IEO. This provides an extra layer of protection to contributors and additional credibility for the projects.
So, can we say that launching and IEO will be a better decision?
To some extend, yes.
Compared to ICOs, the risk of IEOs is much lower for both the project team and contributors.
On the customer’s side, not only will the exchange help them review the projects and filter out scams, but it also provides better liquidity for trading afterward as a large user base is already guaranteed. The exchange will also offer a convenient platform for contributors to manage their funds as all assets can be stored in the exchange account instead of different wallet addresses.
Some official statements and words on behalf of Binance:
An Initial Exchange Offering, commonly referred to as an IEO, is a fundraising method designed to reduce the risk for token purchasers by introducing a trusted intermediary between the project team and the user. In contrast to an Initial Coin Offering (ICO), an Initial Exchange Offering means that the fundraising will be conducted on a well-known exchange’s fundraising platform, such as Binance Launchpad, where users can purchase tokens with funds directly from their own exchange wallet.
The ICO fever in 2017 proved to be a very high-risk environment for individuals wanting to participate in new blockchain project token releases, from accidentally sending funds to the wrong wallet, or some project teams absconding with funds.
This article is written with information gathered from Hackernoon Binance
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