What is an Initial Exchange Offering? It sounds similar to an Initial Coin Offering for crypto or an Initial Public Offering for stocks. But if you assumed that an Initial Exchange Offering is what happens when a brand new crypto exchange opens for business, you’d be making the wrong set of assumptions.
Instead, an Initial Exchange Offering or IEO for short is about a new coin or token being offered through an exchange when it goes to market rather than the sales being originated by the new cryptocurrency’s team itself.
If you’re thinking that the IEO process might be a bit more demanding, you’re absolutely right. Any exchange worth participating in will vet the project, request documentation, and undergo a degree of scrutiny before things move forward.
And the rigor of that (which may be on a sliding scale depending on who you are dealing with) isn’t the only benefit. Those who are approved to run an IEO on a given exchange also benefits from the publicity they will get by association with the exchange, its members, and those who are following both.
The IEO Verification Process
When you or your project want to launch a new coin or token via an IEO, the verification process may require a number of processes. Know Your Customer process, measures to prevent money laundering, and there may be some processes to provide transparency such as providing specific information about the token’s progress to prospective participants.
The team itself is subject to review to see what kind of reputation they have in the crypto space and a white paper describing the project is a standard requirement where applicable. The whitepaper should describe the project, its goals, how those goals may be accomplished, the architecture or technical details behind the project, etc.
All of these things must be reviewed by the exchange prior to deciding whether to do business with a crypto project.
Benefits Of An IEO
One of the immediate benefits of holding an IEO is, as mentioned above, the fact that the project is not issuing new crypto in a vacuum. Using a known exchange adds clout to the team releasing the coin or token but that alone doesn’t make the Initial Exchange Offering attractive. What does?
For some, it’s the ability to get in on the ground floor of a new token or coin knowing that some vetting has already been accomplished. That’s not to say that investors should avoid doing their own due diligence or fail to look behind the scenes whenever possible. But the fact that a project has been vetted means that others have also placed trust in the new coin.
The flipside of that is that when your coin offering has been vetted by an exchange and the IEO gets underway, those offering the coin have a brand new database of potential buyers to market to and be seen by.
And the other perks? One of them is the ability to purchase the new token or coin on the exchange using their own crypto wallets on that platform. You don’t have to get a new wallet or a new way to pay. You can use the exchange you already trust.
Drawbacks Of An IEO
You may need to vet your exchange in a similar manner to how you are vetted as a potential participant in an IEO. Some exchanges may not be as rigorous in their vetting process as others and this is a risk you should be fully aware of leading into any agreement with an exchange.
One reason why this is true? You may be subject to listing fees and other expenses you must pay in association with the project on a given exchange. Don’t agree to pay an exchange any money until you have done the same background and reputation checks on the exchange as they are supposed to do when considering you.
Don’t forget that pump-and-dump scammers abound and the IEO is a tool that has high potential for abuse if all parties don’t exercise due diligence.
Who Offers IEOs?
There are a variety of third-party operators who offer the ability to be considered for an Initial Exchange Offering. They include:
- Huobi Prime
- OKEx Jumpstart
- Probit Launchpad
These are just a few of the bigger names in the space. Don’t assume any exchange is “safe” to use or invest with until you have done the same kinds of research on them as they are expected to do with your proposed IEO.
Joe Wallace has covered real estate and financial topics, including crypto and NFTs since 1995. His work has appeared on Veteran.com, The Pentagon Channel, ABC and many print and online publications. Joe is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.