Initial Exchange Offering (IEO) Definition
An Initial Exchange Offering (IEO) is a fundraising method that is hosted and overseen exclusively by a cryptocurrency exchange. In an IEO, the exchange serves as a kind of trustee and facilitates the process by taking on due diligence and other responsibilities.
Initial Exchange Offering Key Points
- IEO’s are a type of blockchain project financing similar to Initial Coin Offerings (ICOs), but specifically managed by a crypto exchange.
- The token sales take place directly on the exchange’s platform, relieving the project team from the marketing and KYC/AML processes.
- As the exchange takes on most of the responsibility, this greatly enhances investor trust.
- The tokens sold during an IEO are immediately listed on the exchange which hosts the IEO, further providing liquidity to tokens.
What is an Initial Exchange Offering (IEO)?
The term Initial Exchange Offering is derived from the more well-known term Initial Coin Offering (ICO). Rather than the project developers managing the token sale, a cryptocurrency exchange steps up to do the heavy lifting. They manage and oversee the sale of tokens in return for a fee, which is why the offering takes place on the platform of the exchange itself.
Why do an Initial Exchange Offering?
The key reason behind carrying out an IEO lies in the exchange’s reputation. The prevalence of scams and fraudulent activities in ICOs has led to a loss of investor trust. However, as exchanges are typically more established entities, with a name and reputation to uphold, this provides a layer of credibility and safety for investors, leading to more participation.
Who does an Initial Exchange Offering?
IEO’s are typically done by new blockchain projects looking to raise capital. They do this by partnering with a cryptocurrency exchange, who manage the token sale process on their own platform. The exchange often earns a percentage of the token sale as a commission.
When is an Initial Exchange Offering done?
An Initial Exchange Offering is usually done when a new project is looking to raise funds for development and promotion. The timing is often announced by the partnering exchange.
Where is an Initial Exchange Offering done?
As the name suggests, the IEO is carried out on a cryptocurrency exchange platform. Which exchange hosts the offering may play a vital role in the success of the IEO, as it taps into the current user base of the exchange.
How does an Initial Exchange Offering work?
In an IEO, the project developers mint new tokens, which are then sold on the exchange’s platform directly to its users. The exchange vets the project and conducts KYC/AML checks on the project team, thereby assuming much of the risk associated with the token sale. The tokens are immediately listed for trading after the IEO, enhancing liquidity and offering instant value for investors.
