Introduction
With thousands of crypto and blockchain projects already running or in the pipeline, it’s safe to say that most of them need some financial incentive to keep their developers and contributors motivated. However, not all crypto and blockchain projects can be funded through donations or donations from asset holders. In most cases, you will need to raise funds from outside sources sooner or later.
There are a variety of methods available to developers to raise capital. Venture capital (VC) funding can be a time-consuming process, with little to no return on investment. Pre-miner coins can also be minted before the launch of a project and stored in a treasury. However, this method is often met with criticism from the developer community.
Choosing an IEO frequently can be an interesting choice, as long as the developer has a strategy in place and is committed to seeing the project’s vision realized.
What is IEO?
An IEO includes the usage of a crypto exchange for funding a new project. Traders often trade assets on IEOs, but this usually happens after the developers raise funds to launch their projects.
An IEO allows potential investors to purchase these assets ahead of the token’s market launch. With the support of the token sale exchange, registered users who have provided their Know Your Customer (KYC) information will have the opportunity to purchase tokens before they hit the open market.
As an IEO is implemented through an exchange, startups choosing this path must take their plan of action seriously. In the majority of cases, the proposed IEO proposal is subject to rigorous review by the exchange involved. In some aspects, the exchanges stake their credibility for every IEO offered.
How does an IEO work?
Typically, an IEO unfolds through a partnership between a blockchain project and a reputable crypto exchange. The procedure begins with the project's submission of a listing proposal, and upon approval, the exchange administers the token sale on behalf of the project.
Investors gain access to the IEO by acquiring the project's tokens directly from their exchange accounts, utilizing cryptos such as Bitcoin (BTC) or Ethereum (ETH). Some exchanges also facilitate token purchases with fiat currencies.
The exchange platform assumes responsibility for conducting thorough due diligence, ensuring that only trustworthy projects secure listings. This rigorous screening process serves to mitigate the risk of fraudulent activities and scams.
Also Read: What is Initial Game Offering?
Ways for Organizing IEO
Although blockchain is still in its early stages of development, there are already thousands of crypto start-ups and companies on the market. Many of them are contending to attract investors through ICOs or IEOs.
When a crypto project’s developers decide to set up an IEO, there is a complex process that must be completed before raising the first dollar.
There are a number of criteria that must be met for the project's team to be successful. These include a strong business model, skilled team members, a feasible application of the technology, and a whitepaper. Establishing an IEO is similar to declaring their commitment to the project's long-term success.
In addition, they must decide whether their IEO will include a hard cap or a soft cap. The hard cap restricts the amount of money that can be invested, while the soft cap allows for additional investments to be made after the initial goal has been achieved.
Once these choices have been made, the next step is to select an exchange platform to use for the IEO. Launchpad, for example, has enabled dozens of projects to achieve their investment capital requirements. Additionally, other exchanges have established their own IEO platforms, each offering its own advantages, specifications, and potential disadvantages.
Role of IEO in Blockchain Projects
The process of raising capital for new crypto or blockchain initiatives can be challenging. As with any industry, the competition for investment capital is fierce. Not all companies are able to successfully raise capital through traditional channels.
One of the advantages of an IEO is that it targets existing crypto users. This is due to the fact that the participating exchange lends a certain degree of trustworthiness to the project that is raising funds, as the exchange is risking its reputation by facilitating an IEO. However, it is important to note that all participants should conduct their own due diligence prior to committing any funds. An IEO is a dependable solution for projects seeking to raise funds through an exchange. Most IEOs sell out within a short period of time, depending on the scope and use cases of the project. The project token is also listed on the exchange upon completion of the sale.
Benefits of IEO
IEOs come with a range of advantages that contribute to the growing popularity of this fundraising method. Here are some of the key benefits:
Better Security and Trust: IEOs are frequently hosted on reputable exchange platforms known for their stringent project screening procedures. These platforms thoroughly validate and verify project offerings, reducing the risk of fraudulent schemes. As a result, investors can place their trust in the process, knowing there's an added layer of security.
Immediate Liquidity: In contrast to ICOs, where investors often face challenges accessing and trading tokens right after the sale, IEO tokens typically become available for trading on the exchange immediately after the token sale concludes. This ensures instant liquidity, enabling investors to seamlessly buy and sell their tokens.
User-Friendly Experience: Exchanges that facilitate IEOs are equipped with purpose-built platforms featuring user-friendly interfaces and robust back-end systems. This simplifies the entire process for both end-users and project creators, making participation more accessible.
Community and Marketing Support: IEOs harness the existing user base and marketing efforts of established exchanges. This grants projects greater visibility and access to a vast community of potential investors. With this built-in support, projects can gain traction more easily and increase their chances of success.
Drawbacks of IEO
Despite the numerous advantages associated with IEOs, it's important to acknowledge the specific drawbacks they entail, including:
Restricted Investor Base: IEOs typically limit participation to users of a specific exchange platform. This constraint significantly narrows the potential investor pool compared to ICOs, which are open to the general public.
Listing Costs: Exchanges do not offer free listing services. They frequently impose listing fees, which can be notably high, particularly on well-established exchanges. Additionally, they may request a percentage-based commission on token sales, further increasing the expenses for projects.
Regulatory Complexities: IEOs face diverse regulatory challenges as various jurisdictions have distinct regulations and guidelines. Navigating these complexities can be daunting for projects, potentially hindering their ability to operate in full compliance and limiting the global accessibility of the IEO.
Also Read: Risk and rewards of Investing in ICOs and IDOs: What to consider in 2024
Final Thoughts
Due to the lower frequency, IEOs have eliminated some of the worst offenders in the crypto and blockchain ecosystem. Of course, no approach is perfect, but at least IEOs seem to be making progress.
The existence of the IEO does not imply that all investors should participate in these offerings. It is recommended that investors conduct their own due diligence at all times regardless of the fundraising strategy of the companies and projects. While there are advantages to investing in an IEO, there are also risks that cannot be ignored.
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Disclaimer: Any financial and crypto market information shared should not be considered investment advice. It is for informational purposes only. Conduct your own research before making investment decisions. Crypto trading is unregulated and highly risky. There may be no regulatory recourse for any loss of such transactions.
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