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What Is an IEO and How Does It Work?

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As more crypto-based startups launch, Initial Exchange Offerings (IEO) grow more popular. But what exactly is an IEO, and how does it work? And what should you consider when selecting one?

## What is an IEO?

An IEO (Initial Exchange Offering) is a popular capital-raising strategy emerging companies use to raise funds for their projects. Unlike traditional ICO (Initial Coin Offering), where tokens are sold directly to investors, Initial Exchange Offerings rely on centralized exchanges to conduct the token sale.

This adds a layer of security and transparency for the project team and the investors, as the exchange acts as a trusted intermediary that verifies the project's legitimacy and backs the sale.

As a result, IEOs have quickly become the preferred fundraising method for many blockchain-based projects looking to gain exposure and credibility in the market.

The first version of the concept happened in January 2019, when Binance Launchpad launched the BitTorrent Token (BTT).

How does an IEO work?

Typically, IEOs work in several stages. Here’s how to plan for this capital-raising effort from the beginning to the end:

  • Study market needs: During this phase, the startup’s founders need to identify a market need, get data about it, and design a solution that meets this need.

  • Prepare the MVP: Once the solution is identified, the team seeking funding has to develop a minimum viable product. This is a working prototype of what the actual product will be post-funding.

  • Write a white paper: With the product ready, the company needs a white paper. This document explains the need they spotted, the solution, a roadmap for implementing the solution, and the tokenomics.

  • Develop tokens: The next phase often involves selecting a blockchain, setting up smart contracts, and programming the coin.

  • Selecting an exchange and listing the coin: The last phase involves choosing a crypto trading exchange where the IEO will occur.

¢¢ What to consider when selecting an IEO

Here is what you should factor in:

  • The exchange’s reputation: Customer reviews help determine platforms that host lucrative, secure, and legitimate IEOs. It also indicates which exchange is likely to attract more investors.

  • Liquidity: The exchange supporting an IEO needs to have enough liquidity for the token in question. Liquidity ensures buyers can swap the coin with ease. So aim for platforms that provide multiple currencies and trading pools.

  • Safety: When selecting an IEO platform, prioritizing safety is crucial. Look for a platform with secure software and robust data privacy and security measures.

  • Ease of use: Choose easily accessible platforms. Consider factors such as Know Your Customer (KYC) requirements, registration criteria, and the user interface. Complex platforms may overwhelm you or scare away potential investors.

  • Availability: Consider regional restrictions for the IEO platform you want to use. Some exchanges are unavailable in specific regions or countries. So, if you come from or have target investors in such areas, this can pose a challenge.

Pros and cons

Like many digital asset space processes, IEOs have advantages and disadvantages. Let's break down the advantages and disadvantages of initial coin offerings.

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Pros

  • IEOs are safer than other early-stage investment options, like ICOs. Because they are attached to pre-existing and reputable exchanges, there’s a lower risk of fraud and scams.

  • The exclusivity of IEOs also makes them impressive. These investment opportunities are only open to the exchange’s members, reducing the complications of public access.

  • IEOs offer a ready user base for startup founders. Because the exchanges supporting them already have users, it’s easier for companies to find potential investors.

Cons

  • Listing coins for IEOs can be costly, especially when listing on high-ranking trading sites. Additionally, companies may need to pay exchange commissions on the money earned.

  • IEOs can also limit the investor pool. This mostly happens when the selected exchange has regional restrictions or complex KYC processes that lock out investors.

Conclusion

IEOs are impressive opportunities to generate capital for budding organizations. They are also a more secure way to make early-stage crypto investments. However, it always pays to be cautious and do research before settling for an IEO.

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Evans Karanja Ivanco

Evans Karanja Ivanco

Evans Karanja is a content writer and scriptwriter with a focus on crypto, blockchain, and video gaming. He has worked with various startups in the past, helping them create engaging and high-quality content that captures the essence of their brand. Evans is also an avid crypto trader and investor, and he believes that blockchain will revolutionize many industries in the years to come. When he is not writing, find him playing video games or chasing waterfalls.

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