What is IEO and why is it important?
Initial Exchange Offering (IEO) is a new form of investing in a pre-launched project for investors, and a way of raising funds by project creators/owners. An IEO (Initial Exchange Offering) is seen as the safest and secure way of buying a yet-to-be-launched crypto project.
IEO can be described as a decentralized IPO, as it takes the form of the latter but on a blockchain-based crypto exchange platform. It means that the fundraising is conducted on a well-known crypto exchange platform, often targeting the existing users of the platform to purchase the issued tokens with funds available from their exchange wallet. The exchange, here, acts as the middleman between project creators/owners and investors.
Why are IEOs important?
IEOs are seen as the most trusted and easiest process because of how both investors and projects can participate and benefit. Project founders can access more funds from a wide range of verified communities of investors on an exchange. Investors, on the other hand, are assured of the legitimacy of the project because the exchanges do due diligence on a project as a prerequisite for listing. An exchange emphasizes due diligence because of the need to maintain a good reputation by avoiding listing scam projects or having questionable investors on their platform.
For investors, the exchange scrutinizes aspects such as every project’s whitepaper, team, technology, viability (what problem the project solves), etc. The process ensures investors are protected from any scam projects.
As you may recall, Initial Coin Offerings (ICO), which preceded IEO, offered scams more opportunities to defraud investors. Many investors suffered massive losses as projects that promised great benefits ended up being massive scams that sunk investors’ money.
For a project in IEO process, they get to access more funding from the verified users of the exchange. The investors are also assured of the project’s legitimacy based on the success of the previous ones and scrutiny by the exchange. The first thing an exchange platform does is the verification each member of the community upon registration. This is done through Know-Your-Customer (KYC)/Anti Money Laundering (AML) verification process. The strategy is intended to eliminate scams in the fundraising process, which has been the major challenge faced by investors in the ICO system. In IEO, the security of the transaction is assured by contributing to cryptocurrency exchanges, thus lowering the chances of investors losing their funds and token issuers as well are secured through the crowd sale security as the exchange is managing the IEO contract.
IEOs benefit both project owners/creators and investors alike, as it increases the level of trust between the parties involved. With the benefits for both parties, IEO can be described as an improvement ICO, hence offers better fundraising and investment opportunities for projects and investors, respectively.