Initial coin offerings (ICOs) dominated the crypto market for many years (see a classical representation of revenue generated by different ICOs from 01 Jan 2014 to 31 Aug 2018 Check here). They undoubtedly provided a platform for startups especially with little revenue to launch their projects which otherwise was not possible. But they have one strong drawback, being unregulated they are prone to scams.
Although there are many ICOs which gave a good return to their investors, list of ICO scam is also not very short. For instance, Centra Coin (scam) raised $32 million in 2017, the company even hired celebrities to endorse its alleged new economic system. Centra enjoyed the endorsements of DJ Khaled and Floyd Mayweather investors, who are now facing possible legal action.
The Centra scam ended dramatically, with the arrests of the three co-founders. One of them was attempting to flee the US on a flight when he was caught. The coin was then delisted from all exchanges.
To avoid this ICO limitation, crowd funding has taken a new name i.e. Initial exchange offerings and crypto exchanges are rushing after them. Binance accelerated the IEO phenomena by launching its Binance Launchpad. Soon after many exchanges join the party by launching their own IEO platforms. Notable IEO platforms today include Bitmax Launchpad, Bittrex IEO, OK Jumpstart (OKEx), KuCoin Spotlight, and Huobi Prime.
What is IEO?
As their name implies, IEOs have a crypto exchange as its middleman. Investors don't hand money to the project owners rather to crypto exchange that's teamed up with them. In return, investors get coins from the crypto exchange platform. One important thing about IEO is that only members of that given exchange can purchase the tokens not everyone.
Benefits offered by IEOs.
IEOs are backed by third party i.e. crypto exchanges and have standards and regulations. Exchanges add more certainty for IEO tokens by acting as custodians and this drives the confidence of investors. Bittrex cancelled its first IEO RAID just few hours before sale, main reason was a terminated partnership between RAID and the e-gaming data analytics company OP.GG. Since the partnership between the two companies was a vital part of the project Bittrex had no other way but to cancel the IEO.
For startups IEOs shift half of their workloads to exchange as exchanges manage marketing of coins, smart contracts and KYC/AML process. This significantly reduces the cost of project launch. Startups also can take advantage of the exchange's stable customer base to receive more contributions to their projects.
Story of Successful IEOs.
BitTorrent IEO generated 7.12 Million US dollars on Binance Launchpad in Less Than 15 Minutes. 59.4 billion tokens were sold in two different but parallel sessions. Users were offered to buy BTT tokens in Binance Coin (BNB) and TRX.
In the first session, 1x BTT was offered at 0.00001824 BNB, which mean 1 BNB = 54,824.56 BTT tokens. This session ended exactly 13 minutes and 25 seconds after it had started.
In the second session, 1x BTT was offered at 0.00447261 TRX. In this session there was minimum and maximum limits set in place. The minimum amount users can buy 100,000 BTT, while the maximum was 166,666,666 BTT. In this session, 1 TRX = 223.58 BTT.
But story doesn't end here. The second success on Binance Launchpad was Fetch.Ai IEO, which raised $6 Million in just 10 Seconds. There were 2,758 contributors to this fund, making the average contribution of $2,175.
Third successful IEO on Binance Launchpad is Celer Network. Around 39000 people try to participate in this token sale while only 10% of them were fortunate enough to get the tokens. Price asked during the IEO was $0.0067. Currently Celer token is selling at 0.010415 $.
An IEO is still technically a form of ICO with more trust and genuineness. Projects in IEOS are subject to close scrutiny as reputation of exchange is on stake. Smart contracts are managed by exchanges, and exchanges ensure that all participants will receive their funds on time. AML and KYC procedures are also mandatory part of IEOs. However, no exchange could guarantee that your investment would be profitable. Some tokens have lost their value, and their current prices are lower than those during the Initial Exchange Offerings. For instance, ocean protocol IEO price was $0.12 during IEO and is now trading at $0.022571 USD.