Initial Exchange Offerings: The Benefits and Limitations
The hype around IEO (initial exchange offering) is continuously growing. Many crypto market innovators take on the new concept to finance their projects. The intent behind IEO was to develop crowdfunding that could improve ICO’s. In 2017, there were millions invested through ICO’s, and yet many people lost their money due to scams. Companies began to support their projects using IEO to build back the trust, as it is known to be more secure and trustworthy.
It takes a lot of effort to prepare professionally for a successful IEO. If you are wondering about funding your project using this concept, it’s good to know that the process has many stages which make your idea accountable for exchanges.
IEO: What Are the Benefits for Your Business?
The central idea behind IEO is to make crowdfunding more secure and reliable. Exchanges are monitoring the investment process. Therefore, investors don’t have to worry if the team behind the project will corrupt the operation and run away with the money.
The supporters of IEO believe that IEO is a silver bullet to transform an existing situation completely. Generally speaking, exchanges are autonomous institutions that have to ensure their own reputation. As a result, they research the company and make sure that the desired project is valuable and can be executed. Besides trust, there are plenty of other IEO’s benefits:
Fast preparation process – due to a reliable exchange platform status, it takes less time to be recognized and furthermore established. Not to mention, an exchange itself supports and promotes your project.
Easy way to enter new markets – with the help of an exchange platform, it’s easier to enter the market and promote your IEO. It has an active user base which eases the way into a new marketplace.
Trust – as mentioned before, the main IEO advantage over ICO is trust. Exchanges put high criteria for all upcoming fundings and choose only those that can ensure the feasibility of the project’s goals.
Exchange handles the KYC/AML process – to meet all legal regulations takes time, but an exchange can expedite the process and handle it all by itself. As a result, you can focus on executing your project.
Exchange’s network takes the part of the marketing strategy – the goal of an exchange is to bring your project to life and keep its clients satisfied. That’s the reason why the platform creates a part of the marketing strategy and helps to promote it. Again, it gives the advantages of saved costs and allows your project to enter the market faster.
Security – exchanges are managing smart contracts of IEO. There’s no direct link between the project’s team and smart contracts. Thus, they are protected from theft, corruption, and any attack to investments.
A substantial number of new token-holders – the central target of crowdfunding is to finance a project. However, many projects fail before they even start generating investments. When proceeding with IEO, exchanges bring their own token-holders and ease the search of potential investors.
Fast and free listing after the token sale and start of the trades – the exchange’s goal is to protect its clients, and as a result, you get plenty of advantages such as quick and free listings after the token-sale is completed. That saves your time and additional costs.
Disadvantages of IEO
The process of IEO seems promising, yet there are points you should take into consideration:
Strict Requirements of Exchanges to Companies Doing IEO
Exchanges as any other kind of business operate to earn profit and maintain their reputation. If the exchange disappoints its users, they can withdraw their funds and migrate to another platform. Therefore, the exchanges tirelessly work to ensure that companies do IEOs not only to fundraise but also create value.
IEO is Not Free it Requires a Specific Budget
Most of the startups suppose IEO costs nothing. Project owners believe they can be listed at any exchange they want and raise lots of money. It doesn’t work this way. IEO is a service that goes from an exchange to a company, and every service must be paid. As a rule, the more fair exchange is the higher bill it has.
No Guarantees of Success
Although the process of IEO’s has a wide range of benefits, still, there are no guarantees of success. Many factors must be taken into account, for example, a market situation, a project by itself, etc. Also, we must remember the exchange is the main factor as it is responsible for promotion, trading, users, the whole process of IEO.
The Key to the Successful IEO
As mentioned before, IEO is a risky business that takes a lot of effort to succeed, especially, when we talk about European or American projects willing to do IEO in Asia. The mentality is different. Therefore, if you want your project to thrive, it’s better considering professional guidance. One of the providers of such service is CBE (China Blockchain Expert).
Since October 2018, the company together with partners finished ten profitable IEO projects. CBE has an extensive network of exchanges such as OKEx; Bit-Z; Coineal; CoinBene; BitForex; Bibox; LBank; Huobi; ZBG; BitMart; Gate.io; Allcoin; KuCoin, BitSonic, CoinZest. The company also provides a long-term marketing strategy, including token listings on several exchange platforms, and a growing community of reliable customers and partners.
When asked what leads an IEO project to succeed, Vadim Krekotin, the founder of CBE, said that the project has to be well prepared before starting IEO. You need to understand that no exchange will handle your project if it doesn’t have an established promotion and marketing plan or required resources to back the idea. Not to mention, you, as a project owner, will have to climb mountains to launch IEO. It takes hundreds of hours of conference calls and meetings with the team and counterparties.
Vadim also agrees that the media distorts the picture of IEO by pushing success stories of the projects that made millions in a few seconds. That’s quite misleading because it takes a lot of time to end the project and bring it to IEO.
Moreover, nobody knows how long this hype will last, because the cryptomarket is changing rapidly. The exchanges that are successfully launching IEOs raise their listing fees and toughen up the requirements to next projects. As a result, the projects that are poorly executed will be washed out of the market.
However, Vadim says still there is an excellent chance of succeeding in IEO if you follow three main recommendations:
- Find the best exchange or several exchanges for your project. Conduct research and make sure it can expedite your concept development and success.
- Prepare your project. No exchange will deal with an incomplete or inadequate concept. You have to execute a thorough plan for it and have the proof of feasibility. The plan for your IEO project has to meet various requirements; some are:
- A considerable amount of followers or users
- A budget to start the project
- PR and marketing strategies
- A working product
- A reliable and steady team
- Support of institutional investors
- Have a long-term strategy. The approach should indicate your market making plan and partners, not to mention, initial agreements with exchanges for future listings. It will ensure an exchange and your prospective investors that the project is promising and worth investing to.
In conclusion, Vadim says:
“As new trends cross a business landscape, we have to be prepared to handle them. IEOs are one of the excellent examples of the crypto community’s enhancement. If you have a compelling idea and want to support it, perhaps, IEO is a way to do it.
However, we should remember at the end of a party someone needs to pay the bill. We saw a similar situation in 2017 and 2018 when hundreds of projects couldn’t resist market realities and had to wrap up their operations. In IEO there are three parties involved in the process: projects, exchanges, and token-holders. Exchanges for exchanges make IEO’s, so they hold their positions with all their strength. The rest is projects and users. Think it over and make up your own conclusion.”