Initial Exchange Offering (IEO) Definition
An Initial Exchange Offering (IEO) is a variant of Initial Coin Offering (ICO) but, as the name suggests, conducted over the crypto trading platform or exchange. In an IEO, cryptocurrency exchanges manage the process of token sale on behalf of the crypto startups that seek to raise funds with their newly issued tokens.
Initial Exchange Offering (IEO) Key Points
- An IEO is a type of crowdfunding strategy managed by cryptocurrency exchanges for startups to gather funds for their projects, in return for newly-issued tokens.
- In an IEO, the exchange as the intermediary screens every project that seeks to launch an IEO on its platform and carries out a thorough due diligence process.
- The participating exchanges in an IEO also handle some of the tasks including marketing, KYC/AML process for their startups.
- In contrast with Initial Coin Offerings (ICOs), the token buyers in IEOs are usually the exchange’s existing clients rather than the general public.
WHAT is an Initial Exchange Offering?
An Initial Exchange Offering (IEO) is a method of fundraising for blockchain-based projects, where the fundraising and sale of tokens is conducted on a cryptocurrency exchange platform. Associated with the cryptocurrency world, IEOs are ways for companies to raise capital by issuing digital tokens or currencies on a blockchain, and offering them for sale on a cryptocurrency exchange’s platform.
WHY are Initial Exchange Offerings done?
Startups use IEOs to raise funds for their projects. Through an IEO, a crypto project can sell its tokens on an exchange’s platform, and the tokens of such crypto startups are then made available for purchase to the exchange’s existing user base. This not only provides startups an easy way to raise funds, but also gives them access to a larger and already engaged audience.
WHO conducts the Initial Exchange Offering?
The fundraising process in an IEO is conducted by a cryptocurrency exchange on behalf of the startup that seeks to raise funds with its newly-created tokens. The participating exchange will take a percentage of the tokens sold during the IEO as a fee for their services.
WHERE does the Initial Exchange Offering take place?
The entire process of an Initial Exchange Offering occurs on a cryptocurrency exchange platform. Unlike an ICO, where investors need to send funds to a smart contract, with an IEO, users can purchase tokens directly from the exchange’s interface using funds in their existing accounts.
WHEN can a firm do an Initial Exchange Offering?
A firm can conduct an IEO once it’s developed its product or service to a point where it requires funding for further growth, and after the crypto exchange has done a complete assessment and agreed to facilitate the token sale. The exact timing can vary depending on various factors, such as the market conditions and the preparedness of the project itself.
HOW does the Initial Exchange Offering (IEO) work?
IEOs work by relying on the existing technology and user base of a cryptocurrency exchange. The project seeking to raise funds via an IEO creates its batch of crypto tokens, then sends them to the exchange, which will then sell the tokens to its own users. In essence, the exchange acts as a counterparty between the token issuers and the buyers, thereby also handling KYC and AML checks, ensuring compliance and transparency in the process.
