Are IEO’s really worth the hype?
What is IEO?
As the name suggests – an Initial Exchange Offering (IEO) is a token sale event conducted using cryptocurrency exchange’s infrastructure. The sale is administered by the exchange, on behalf of the team.
IEOs are getting more and more attention, both from business teams and investors. But are they really the right solution for you to finance your business idea?
To spice-up this articles we reached out to Stoyan Angelov CEO and Founder of Evedo (currently running an IEO) to share his experience with us.
But first, let’s put the appearance of the IEO’s in perspective. Before the rise of the IEO model in the blockchain space, we had witnessed the ICO and STO models. We have discussed their advantages and disadvantages in previous blockchain and business articles.
Over time, mostly due to scammy projects investors lost trust and as we all know when there is no trust there is no business. But the appearance of the IEO’s seems to have solved the trust issue.
We can speculate that from an investor’s perspective one feels more secure when investing in a project listed on his favorite exchange. This means that by accepting to run an IEO the exchanges are putting their reputation at stake. Let me put this in another way. Investors trust projects because they trust the exchanges that they are running on.
Stoyan, Why did choose to run an IEO?
It has been more than 1 year since we started our work on Evedo. Our team has started talking about the possibility of launching an Initial Exchange Offering for quite some time. It was our trip and remote work from Thailand that made a significant change in the way we structure our fundraising model. We received a lot of advisory on the IEO part.
Actually, I think that the new wave of fundraising through exchange token sales is really valuable for all the parties involved.
You as a business owner need the people to trust you so they can invest in your idea and help you develop it. So by running your IEO on a platform that is trusted, you are increasing your chances to attract more investors, thus more funds for your idea. But running your crowdfunding campaign on an exchange is having its pros and cons.
Not to be overhyped. IEOs are not only bringing us positives, but there are also some negatives.
What are the CONs?
COST / CONTROL / REACH
As we mentioned above, if you decide to use the IEO model you are going to benefit from the exchange’s reputation, but that comes at a price. So the first thing is the cost. Be prepared to spend some money upfront in order to be able to make your campaign on a specific exchange.
Running your campaign on an exchange is going to save you time and will help you mitigate some security risks but since you do not have the private keys to your wallet you are giving up the control over your funds and tokens. Can you trust the exchange?
And third, by deciding to go with one exchange you automatically exclude all other exchanges, thus you limit your reach of investors.
What are the PROs?
REPUTATION / LIQUIDITY / SECURITY
Fist, as we have already said, one of the main advantages to run your crowdfunding campaign on a certain exchange is its reputation. Moreover, all current customers of the exchange are becoming your potential customers.
Second, not neglectable from both investor’s and business owner’s perspective benefit is the liquidity of the token at the end of the token sale. The more liquidity – the better.
And last, running your campaign on an exchange can help you with reducing some security risks. Allowing the investors to purchase the tokens on exchange as opposed to sending smart contract addresses where they have to send their tokens is lowering the risk of phishing attacks.
What did you get from working with an exchange?
We asked Stoyan, and this is what he answered:
At the current market situation, an Initial Exchange Offering simply makes sense. IEO adds some protection for the investors who participate, as the token is already listed on an exchange and the exchange is somehow the middleman who ensures credibility and trust.
Most of the exchanges do heavy due diligence on the projects before they even consider their application for IEO. This is exactly what happened to us! We waited more than 3 weeks just for the internal teams of BitForex to do due diligence on our papers, company incorporation, team, token, token economics, business model, etc. Right after that our application was processed and we started structuring when and how we are going to make it. We can say that projects that issue an IEO have increased credibility, because of the Exchange that has their backs, so to say.
We believe the IEO model assures fewer scams. When we think of the ICO wave from 2017 and 2018 we normally recall all the projects that were somehow fraudulent which led to a certain disappointment in the blockchain field in general.
For Evedo, IEO is an interesting opportunity for two main reasons. First of all, it is a way to raise funding for further product development without the traditional VC investment model. Secondly, it is also a fruitful opportunity as a Marketing strategy and spreading the word about what we are trying to build in markets, networks, and communities who are quite different.
How did you choose your exchange?
I was introduced to the BitForex team during the year’s TokenomX in Bangkok. We got along really well. We set up a call, and me, as well as Elena (CMO of Evedo) got a really long discussion with them. We were currently speaking with a few other exchanges at the time but we chose BitForex as we trusted their professional approach and interesting markets that they operate on.
In your opinion, are IEOs really worth the hype?
We think the IEOs really worth the hype. As I mentioned in my previous answer projects that issue an IEO have increased credibility, because of the Exchange. It’s a better way to reach out to new communities, new markets. It’s an interesting opportunity now and we are happy to be a part of it.
What are the alternatives to raise funds?
Besides the traditional well-known ways to raise funds and the above mentioned ICO, STO and IEO there are also a bunch of other alternatives. All of them rely on code rather than on a centralized authority.
The first worth mentioning is the DAICO. It’s a mix of DAO and ICO. The DAICO model was proposed by Vitalik Buterin, father of Ethereum, a few years ago. It is a fair model giving more power and control in the investor’s hands.
The second one is the TTO (trusted token offering) using a smart contract middle layer that is distributing the funds to the developers only according to achieved milestones.
And last, another decentralized solution that is allowing us to create cool token models are bonding curves. Without getting into technical details we can say that bonding curves are a great way to provide instant liquidity and a continuous funding model. An example of a project using bonding curves during a token sale was Bancor, helping them to raise over 140 million USD in just over 8 hours.
What to expect next?
As IEO was an alternative to ICO and STO, we can expect to see in the near future the appearance of new funding models, providing investors with more control and more security. In my opinion that can be in the form of DIEO (decentralized initial exchange offering), which will combine the pros of IEO and the pros of the decentralized models that we have discussed above.
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Also published on Medium.
Interesting article! You have to write one for the bonding curves coin offerings, but in details. Or maybe a meetup with this topic? Have a nice day!
Thanks for the suggestion! We can try doing this in some of the next meetups to come.
Good Information, Thanks for sharing.
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