Initial Exchange Offerings (IEO)
ICOs were a great way for crypto startups to raise money and to involve the wider public in a financial mechanism that had largely been only for institutions. That was the Initial Public Offering on stock exchanges, where you would need to go through a middle man to be able to buy shares of a company that was “going public” for the first time.
ICOs, however, were not regulated and soon started to be a place for scams and get rich quick schemes proliferated, taking some of the shine off of the crypto ecosystem. China moved quickly to ban ICOs altogether, while the SEC clamped down on ICOs by classifying them as securities. The landscape today is far different from the heady days of 2013 when MasterCoin released the first ICO out into the wild.
Trust Still Needs An Institutional Factor
All the scams that had recently plagued the ICO landscape have led to the major exchanges offering their services as an intermediary. So now, it has come to the point where a startup that has issued a token on a network, will contract exchange to handle the ICO for them. This is known as an IEO, or Initial Exchange Offering.
The good thing regarding an IEO is that the token will get a listing immediately. That means paying a listing fee to the exchange handling the process. A percentage of tokens will also go to the exchange in return for services rendered. Since the exchange is the first place the token will be listed, and they receive a percentage of the tokens for facilitating the IO (Initial Offering), they are incentivized to market the token more than if they had just received a listing fee.
This means that sending contributions to a smart contract is no longer an option for startups that decide to go this route. Any investors/contributors to an IEO will have to register an account on the exchange and fund their purchase of tokens from the wallet on the exchange that the startup has chosen.
This move to institutions makes sense in a number of ways. While ICOs were finally able to give the cryptocurrency world the financial independence from traditional markets that they had craved it also introduced certain worries. Regulation of ICOs being the primary worry from a government's point of view. Since current regulatory frameworks have focused on crypto exchanges more than anything else, it makes sense that these exchanges would leverage their position to help give issued tokens a sense of legitimacy in the eyes of regulators.
Binance Started The Revolution
Binance was the first company to start the IEO trend with its Binance Launchpad platform. Other exchanges have followed suit but Binance still leads the way by some margin. Added to its services as a launch partner for IEOs, the company has also developed a blockchain technology of its own. This has allowed Binance to work on multiple fronts as it can be both the launch platform and the blockchain on which the token is released.
Their marketing work has been shown to be exemplary. The recent BitTorrent Token IEO they helped facilitate was a raging success and goes to show just how influential Binance is in the industry. While BitTorrent Token is based on the TRON blockchain, Binance has shown itself to be a shrewd operator in the market.
Multiple anonymous reports in the crypto industry have been saying that Binance is using its position as the current leader in IEOs and the owner of a particularly robust blockchain platform to “nudge” potential startups to their platform. In fact, some have even received veiled threats of delisting unless they were on Binance Chain, though only if the coin trading volumes dip below $1 million a day.
Other exchanges are not twiddling their thumbs though. Bittrex, BitMax, Huobi, KuKoin, and OKEx have all opened up launch programs of their own. One new entrant to the IEO game is quickly catching up to the established leaders. BitForex started its Turbo program this month and has already had four successful launches. Its fifth launch will happen soon and it will be the event marketplace called Evedo.
New entrants like BitForex show that there is an enormous appetite for IEOs and more new entrants are expected. These new entrants are using their regulatory power in various jurisdictions to gain market share where other exchanges do not have the means.
The landscape for crypto financing is changing quickly, and the future holds a lot of challenges for anyone arriving into the market. However, that is why this particular section of the industry is one to watch very carefully.