If you were to talk to a group of crypto investors who had participated in ICOs during the great ‘boom’ of 2017-18 you are likely to hear mentioned a few major issues of token sales that needed to be solved. One was the problem of scam projects. Especially in the very early days of ICOs, it was very difficult to tell the quality offerings apart from the duds.
Another issue had to do with personal data. Investors found that they had to trust every single project they invested in with sensitive personal data, including scans of their passports, in order to meet KYC/AML compliance requirements. All it would take was a single data breach and an investor’s identity could be stolen.
IEOs, it seems, offer a solution to both of these problems.
An Initial Exchange Offering (IEO) is new kind of blockchain-powered crowdfunding scheme where token purchase and distribution is carried out through an exchange. Rather than going straight to the token issuer to purchase tokens, investors interact almost exclusively with the exchange. Typically, exchanges agree to host IEOs in exchange for a fee or percentage of funds raised.
For investors, IEOs provide two key advantages over ICOs. First, given that projects must apply to the exchange in order to be hosted there, there is a much higher level of screening for the project than there would have been if it were an ICO. Exchanges that host IEOs understand that their reputation is at stake when they present to their community a token sale. They don’t want to bring a dud to their community!
Second, investors can feel more at ease that their personal data will be kept safe. Rather than sending their passport to dozens of different projects, they only need to go through the verification procedure with the exchange once, then they can participate in as many offerings on that exchange as they want. The risk of a data leak is radically reduced as a result.
IEOs are not just advantageous for investors, of course. For the projects that are seeking to raise money, there are a host of benefits to carrying out an IEO over an ICO.
For instance, through an IEO, projects – which tend to be early stage startups themselves – can maximize their reach through the exchange’s pre-existing community. This can radically reduce marketing costs over the course of the fundraising period. Additionally, projects are able to take some liability off of themselves by leaving the burden of compliance to the exchange. The project will not need to maintain sensitive user records or need to expend precious resources on legal advice and compliance staff. Finally, issuers can rest assured that their token will be listed after the IEO since it’s been listed since the start.
While 2019 may indeed be the year of the STO, IEOs sure do show a lot of promise. With a number of excellent, popular, exchanges already entering this market, it seems to be clear that IEOs may just be the best utility token crowdfunding mechanism out there. Token listing sites Coincodex and ICOBench are already showing dozens of them, after all!
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