Abstract

When a new digital currency project hopes to launch a digital currency or blockchain product, but requires huge investment funds to go online When, IEO is usually carried out.

Unlike initial coin offerings (ICOs), IEOs need to rely on digital currency trading platforms like Binance. Such projects can raise funds with the help of the trading platform’s customer base and start trading the tokens soon.

Introduction

Today, thousands of digital currencies and blockchain projects have been launched or are still in development development stage. Most projects need to introduce financial incentives to attract developers and contributors to continue to participate. After all, not all projects have access to generous donations or donations from asset holders, and it is often just a matter of time before external financing is introduced.

Developers can raise funds in a variety of ways. Obtaining financial support from venture capitalists (VCs) takes time and effort and yields little results. Minting tokens before a project launches (called "pre-mining") and storing them in a vault is also a viable option, but has often been met with criticism from the community.

IEOs are often an attractive option, assuming developers have a specific plan of activity and are committed to achieving the project vision.

What is an Initial Exchange Offering (IEO)?

As the name suggests, an initial exchange offering (IEO) refers to raising funds for new projects through a digital currency trading platform. Trading assets on these platforms is commonplace, but usually only after developers have raised funds to successfully launch the project.

Through IEO, potential investors can buy these assets before they are listed on the market. Through the trading platform that promotes token sales, registered users who provide KYC information can purchase tokens before the open market opens for trading.

IEO is powered by a trading platform, so startups that choose this option must take their event program seriously. In most cases, IEO proposals are rigorously scrutinized by participating trading platforms. In a sense, the trading platform uses its business reputation to provide guarantee for approved IEO activities.

How is IEO organized?

Although blockchain technology is still in its early stages of development, thousands of digital currency startups and enterprises have been born in the industry. Many of them are competing to attract potential investors through ICO or IEO campaigns.

If the developers of a digital currency project decide to organize an IEO, there is a complex set of procedures that must be followed before raising the first funds.

The project team must meet several requirements: a robust and reliable business model, experienced team members, practical technical use cases and providing a white paper are the most important indicators. Organizing an IEO is equivalent to declaring that you will work hard to lead the project to long-term success.

In addition, they need to determine whether the initial exchange offering will receive a hard cap or a soft cap. A hard cap ensures that the amount invested does not exceed the cap. A soft cap sets an initial target that must be met, but allows for additional investments later.

After making these decisions, you need to choose the ideal trading platform for your IEO. Binance Launchpad has helped dozens of projects obtain the investment funds they need. Some examples include BitTorrent (BTT), Band Protocol (BAND), Axie Infinity (AXS), Alpha Finance Lab (ALPHA), and WazirX (WRX). Other trading platforms have also established exclusive IEO platforms, and each platform has corresponding advantages, requirements and potential flaws.

Why do blockchain projects conduct IEO

To raise funds for new digital currencies or blockchain projects Can be quite difficult. Like every other industry, competition to attract investors is fierce. Not everyone can successfully bring in investment funds through traditional methods.

This is where IEOs come in, catering to the needs of existing digital currency holders. Participating trading platforms can bring a certain degree of credibility to the project raising funds, so IEOs are trustworthy to a certain extent. After all, the trading platform guarantees the IEO with its own business reputation. Even so, everyone should conduct thorough research before making any financial commitments.

For projects that hope to raise funds through trading platforms, IEO is undoubtedly a trustworthy solution. Most ICOs sell out quickly, depending on the project vision and use case. Project tokens will also be listed on the trading platform after the sale ends.

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Comparison between IEO and ICO

Theoretically, the concept of IEO seems to be similar to that of ICO. During the Ethereum ICO bubble period from 2017 to 2018, ICO activities were launched every day. Many projects have successfully raised millions of dollars, but there have also been a number of misleading products and outright scams. Since no one publicly "vetted" ICOs, the concept eventually evolved into IEOs, which many considered more trustworthy. Many ICOs have violated U.S. securities laws, resulting in various lawsuits and investor refunds.

It turns out that the risks involved in participating in ICOs are extremely high. Investors must send Bitcoin or Ethereum to a smart contract or website in the expectation of receiving tokens. Anyone with some basic knowledge of smart contracts and web development skills can put together a fancy website, complete with a promising-looking roadmap, and start raising money. This is far from ideal and creates significant risks for all ICO investors.

IEO significantly reduces these risks. Investors inject funds through the trading platform’s wallet rather than sending money directly to the project. Due to the very stringent requirements, projects that lack credibility or teams that lack commercial awareness will not be able to successfully implement an IEO.

In addition, IEO reduces risk and increases flexibility compared to ICO. The tokens will definitely be listed on the exchange organizing the sale. It is easier for investors to exit the market if necessary.

Risks and Opportunities of IEO

Even if the trading platform conducts strict review on every IEO it participates in, It is still impossible to eliminate investment risks. There is a good chance that the project that raises funds will not achieve its vision. Regardless of the value of the token at the time of the IEO, this issue usually adversely affects the price.

Having said that, IEO can create favorable investment opportunities. Being able to purchase upcoming tokens in advance and knowing that they will be listed in the market with excellent liquidity does open up some opportunities. However, not all IEO tokens will appreciate in value after opening trading.

Summary

The lower frequency of IEOs has helped eliminate a few less successful players in the digital currency and blockchain fields. Popular items. However, no method is foolproof, but IEOs are at least on the right track.

Of course, the existence of IEO does not mean that everyone should invest in these products. Regardless of the method your company and project uses to raise capital, you should conduct due diligence at all times. There are indeed many advantages to providing funds to IEOs, but the risks behind them cannot be ignored.

Do you have any other questions about crowdfunding and digital currencies? Please visit our Q&A platform Ask Academy, where members of the Binance community will patiently answer your questions.