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What Is Initial Exchange Offering (IEO) & How Does It Work?

Updated on :  

08 min read.

Generally, you can buy crypto at its initial release in the ICOs (initial coin offerings). But ICOs have proved to be a risky investment environment in the past. In contrast, an IEO or initial exchange offering provides a more secure alternative for potential investors to buy tokens during the fundraising phase with funds directly from their exchange wallets.

IEOs originated in January 2019 with the BitTorrent Token (BTT) launch by Binance Launchpad. Notably, the initial offering raised funds of over $7.1 million and was sold out within 15 minutes of release.

Here’s a look at the various details related to an IEO.

IEO: What is it?

An IEO or initial exchange offering refers to an event where the sale of tokens is conducted through an established mode of exchanging crypto. It is a way start-up organisations raise capital by selling utility tokens that confer preferred status with the organisation via a crypto exchange platform. 

Working of an IEO

Firstly, a verification procedure takes place to prevent scams rampant with ICOs. The exchange platforms carry out several checks before a sale’s commencement to ensure that the new digital currency is what it claims to be. That is quite natural as the name of the crypto exchange is on the line if it launches an unverified IEO.

Also, a white paper is necessary. This is similar to an academic paper and serves to educate and inform investors about the project. This includes a detailed illustration of the product’s technical aspects, architecture and the issues it aims to solve. It can also have other things like the team’s vision for the project, why developers and investors must show interest in it and tokenomics. 

An IEO platform scrutinises this white paper and other factors before a blockchain project gets the go-ahead. A crypto exchange can also look at other factors that include:

  • Unique selling points or claims of the currency
  • Demand and tokenomics for it in cryptocurrency
  • Background of the team which is behind the project
  • Examining the underlying technology

After the crypto exchange has decided to go ahead with the IEO project, the investors are asked to follow Anti-Money Laundering (AML) and Know Your Customer (KYC) measures. Also, the contributors and investors are offered full transparency about the project’s progress.

Launching an IEO

You must consider these if you want to get started on your IEO cryptocurrency project:

  • Analyse your market scenario and idea

Before launching an IEO, you must first analyse your project and look at the present market scenario to ensure that your project is feasible. It is vital to be aware of what the market requires to ensure that your currency will address a market gap.

  • Get your MVP ready

Established crypto exchanges only list projects which have already witnessed significant progress. Therefore, when you launch on a cryptocurrency exchange platform, it is imperative to ensure that your minimum viable product (MVP) is ready or at least development is underway. This is a necessity for a project to get listed on top exchange platforms.

  • Selecting an exchange platform

Choosing an exchange platform is crucial because this selected platform will shape the IEO trend’s future and set the pace of the competition. You must choose a reliable and secure platform. This is because the platform will be in total control of the private keys of its users. These are some of the industry’s top exchange platforms:

  • Binance Launchpad
  • KuCoin Spotlight
  • OKEx Jumpstart
  • Bittrex
  • Huobi Prime
  • Draft a white paper

The next step in a successful IEO launch is drafting a well-written and well-researched white paper. The following tips can prove to be helpful when it comes to drafting a white paper:

  • Break down the content into more readable and smaller sections.
  • Highlight how investors can gain from the project.
  • Define the present market scenario and indicate the gaps or issues your project aims to solve.
  • Establish your team’s credibility and experience.
  • Design and develop your website

Your web portal is the digital and a more digestible version of the white paper. A web portal will help offer accessible information to potential contributors and investors. So it must have an excellent user interface (UI) and user experience (UX), be well-designed, secure and loads fast.

  • Develop tokens

At this stage, you will be creating tokens to list on exchange platforms for potential investors. Before token development, you must decide on the number of tokens you will issue along with a system to determine its value.

Tokens development can occur through blockchain platforms like Ethereum, NEO, EOS and others. 

  • Have a clear funding goal

You must decide on a funding goal regarding the number of tokens which will enter the IEO sale. Before listing tokens on your chosen exchange platform, you must already determine the maximum funding requirement.

Determining the maximum amount of funds your project can raise is important to assure investors that your goal is tangible and practical and you are not only in it to raise money.

  • List the token on the exchange

After minting the tokens, they are ready for listing on exchange platforms. Every exchange platform has its own set of rules regarding the listing of tokens. So you must comply with all such requirements and pass the selection criteria.

Once the platform completes the various procedures, including due diligence checks, etc., your tokens can be successfully listed on the exchange, and sales can begin.

Advantages of IEO

  • IEO platforms provide investors with an improved user experience in comparison to ICOs. 
  • There is a lesser risk of fraud, as IEOs are regulated per the exchange’s set rules.
  • As IEOs are conducted via third-party exchanges, they run smoothly. Exchange platforms oversee the transactions and can also provide marketing and development support.
  • IEOs are not open to the public but only to the exchange platform’s existing members.
  • Investors are more confident when token sales occur via a trusted crypto exchange platform. This also offers the project more credibility and legitimacy, attracting further investments.

Disadvantages of IEO

  • There is a risk of the crypto pump and dump scams with IEO. Scammers carry out these scams by generating a fake hype around crypto to develop interest and drive the prices so they can sell all shares soon afterwards.
  • All crypto exchange platforms are not equal. Some may not be as strict in implementing regulations or doing due diligence.
  • Listing fees can be high, particularly on reputed exchange platforms. Also, startups may have to provide a commission from token sales to the exchange.

Suppose you are looking forward to participating in an IEO. In that case, the primary thing you must focus on at the start is developing and strengthening the project to attract many investors. After that, the exchange itself manages the rest.

After the listing of tokens takes place, you can reach more investors and gain traction by further marketing your project. For that, you can look forward to tried-and-tested marketing strategies to ensure the proper promotion of your project.