Initial Coin Offerings (ICOs) offered a unique mechanism for new businesses to raise capital from the market. In fact, a lot of credit to the 2017 bull run must go to ICOs which were lapped up by investors in hopes of generating good returns. The 2018 bear market dulled the enthusiasm for ICOs among investors who were now increasingly picky about putting money in new projects. Initial Exchange Offerings are addressing the market need by overcoming some of the limitations associated with first-generation token sales and driving the market ahead.
What are Initial Exchange Offerings (IEOs)?
IEOs are like ICOs, but the key difference is that the token sale is conducted by a trustworthy cryptocurrency exchange. Earlier, token issuers managed most of the key processes associated with ICOs. With IEOs, the exchanges are also important stakeholders of the project and they perform due diligence such as audits and technical analysis before partnering with a new token issuer. They also provide a platform to manage the token sale process.
Retail investors are more comfortable investing in IEOs since good cryptocurrency exchanges have strict KYC, AML and compliance processes in place. In addition, users do not need to set up multiple accounts with different token issuers. The entire token sale is done within the platform itself. Most importantly, the tokens are also listed on the exchange after the conclusion of the token sale, providing liquidity and trading opportunities to investors. Token issuers benefit from the robust infrastructure, security and user base that come with large cryptocurrency exchanges. It is truly a win-win for exchanges, token issuers and retail investors.
The State of the IEO Market
It wouldn’t be wrong to say that we are in the midst of an IEO boom. We had predicted the rise in IEOs in our ICO Trends for 2019 blog. While the core idea has been around for the past couple of years, it garnered retail interest due to Binance’s Launchpad platform. All its three IEOs — BitTorrent, Fetch.AI and Celer Network — have been hugely popular among investors.
Looking at Binance, many other leading cryptocurrency exchanges have started offering IEOs on their platform. Huobi has launched a platform called Huobi Prime whereas OKEx has launched OK Jumpstart to help new token issuers.
The Gibraltar Blockchain Exchange (GBX) is one of the pioneers in this space having successfully conducted seven token sales through its GBX Grid platform. It’s parent Gibraltar Stock Exchange (GSX) recently got the regulatory nod to list tokenised securities on its platform.
The Future of Token Sales
The popularity of IEOs has clearly shown that the market adapts according to the needs of the participants. If scam ICOs were a concern for investors before, IEOs immediately addressed that through a strict screening process. The market has also started moving towards security tokens — a regulated way to offer securities as tokens.
The point is that token sales offer a novel way for token issuers to raise money from the market, without having to give up equity or being answerable to someone outside the core team. For investors, this gives them a chance to participate in a project very early in its lifecycle and benefit from it if the business succeeds. Considering these factors, it is unlikely that token sales will ever go out of fashion. They will only evolve to suit the needs of the market.