After ICOs and STOs, a growing number of blockchain startups wishing to raise funds are now turning to the IEOs model, or Initial Exchange Offering. These offers are managed in direct partnership with market places. What are the advantages and disadvantages?
Lessons learned from ICO-mania
The 2017 ICO-mania, after benefiting many speculators, also emptied the pockets of many people in search of quick profits once the bear market was established.
At the time, ICOs were still under the radar of regulators and did not fall into traditional fundraising categories. As a result, investors had to be able to do their own research in order to sort out scams, unrealistic utopias and serious projects.
ICOs were still under the radar of regulators and did not fit into traditional fundraising categories
Today, the framework has changed a lot. Investors are more cautious because they know that profits are far from guaranteed, regulators are more involved and project leaders want to expose themselves to less risk, especially legal. It is in this context that we see the emergence of STOs and IEOs today.
What is an Initial Exchange Offering?
IEOs are therefore fundraising carried out in partnership with market places.
What interest for project leaders?
From the point of view of the blockchain startup, the interest is twofold:
By going through a marketplace with an established reputation, the project generates both confidence and visibility among potential investors. Trust because the platform would take a reputational risk to put forward a project that is not serious, or quite simply a scam. Visibility because the platform offers it to all its customers, which reduces marketing costs to almost nothing.
By going through a marketplace with an established reputation, the project generates both confidence and visibility among potential investors.
Project leaders also benefit from the platform's KYC / AML procedures without having to develop theirs, because only registered customers with a verified profile have the right to invest in IEOs. This allows us to better position ourselves in the face of potential sanctions from regulators.
What interest for marketplaces?
Marketplaces charge for this service. In addition to the fees associated with this type of transaction which can cost several dozen bitcoins, they also negotiate a percentage of the sales and amounts of the startup's tokens. These are lucrative operations.
Marketplaces charge for this service and also negotiate a percentage of the startup's sales and token amounts.
In addition, they ensure a good positioning on this asset. The marketplace is guaranteed to be able to lead the market in this asset for a certain period of time, and therefore to collect the commissions associated with trading in the asset.
What interest for investors?
For investors, the interest is relatively clear. They guarantee that a professional service has dissected the project in order to ensure its legitimacy to agree to list it on the platform and run the reputational risk. They are confident that the project will be listed on the platform and that there will be liquidity to carry out transactions after the fundraising period.
And there is the ease. To subscribe to an ICO, you had to install a wallet, own ethers, and understand how to interact with the ICO smart contract. Here, just send euros or cryptos to an online platform to convert them into the asset you want to get in a few minutes.
Investors have the guarantee of a minimum legitimacy of the project, of finding liquidity and of being able to invest easily
According to Coinschedule, 98 IEOs have taken place to date. The amounts raised range from a few hundred thousand dollars to a few million dollars, with a few exceptions to several tens of millions of dollars. Many of them are successful in reaching their sales targets, thanks to the exposure the platform gives them. Some IEOs elapsed in less than 30 seconds.
So far, many IEOs have proven to be good speculative investments, thanks to the ease of access by all types of investors. But we nevertheless believe that they remain very short termist and speculative investments, the trend of which can be reversed just as quickly as that of ICOs. It remains to be seen whether the players concerned will develop this new tool wisely or if this new trend will disappear as quickly as that of ICOs.