Initial Exchange Offerings (IEOs) may soon replace the Initial Coin Offerings (ICOs) as a form of crowdfunding. According to an Investopedia report, 80% of all ICO sales are scams with at least $9 million lost daily. These fraud cases coupled with global regulations have affected the ICO funding method.
After China banned ICOs in 2017, the business model has seen a downward trend ever since. Nonetheless, a new funding method, IEO, provided solutions. This method keeps gaining popularity among blockchain startups aiming to get funding.
What is an IEO?
An Initial Exchange Offering is described as a crowdfunding strategy that primarily relies on an exchange or even multiple exchanges. The involved third-party exchanges plan the events, make the smart contract, and also design the marketing campaigns. Therefore, investors are required to create accounts with the exchanges to enable them to participate in an IEO.
Also, they send their digital tokens to the participating exchange rather than contributing them the Smart Contract like it is done in ICOs. Binance launched the first ever IEO platform in 2017. Since that time, the popularity of initial exchange offerings has increased among the crypto startups considerably.
Benefits of IEO Funding
IEOs have several advantages over their ICO predecessors.
- IEOs feature an easy Know Your Customer (KYC) process. Since IEO funding happens via a crypto exchange, participants do not have to go through the KYC process for every IEO project.
- All transactions are secure since the crypto exchange hosting the IEO already has a stable and functional payment network that makes it trustable and easier for investors to participate.
- Investors get the chance to research among various projects hosted by one exchange platform before making an investment. That, in turn, increases investor confidence.
- IEOs do not need heavy investments on marketing like the ICOs since the crypto exchanges already have an established userbase.
- The host exchange platforms review the credibility of the IEO projects extensively before listing them to secure their reputation. Thus, investors can be sure that no scams are listed on the exchange.
Any developer planning to launch an IEO should follow the following tips to ensure that their project runs smoothly and successfully.
Have a Prototype or MVP
A majority of the investors shy away from investing if the pitch only has ideas and concepts. Having a Minimum Viable Product (MVP) or some kind of prototype plays a major role in building trust among investors. Whenever a prototype is not available, the project developer should in the least show an excellent progress report in the development phase. Excellent progress may provide more and better funding opportunities.
Provide an Exhaustive White Paper
The next most important part of a project is its white paper. The white paper provides extensive documentation that helps potential investors to make informed choices. The best white paper must feature all details about the business and the underlying technology of the project. Also, it entails the improvements that the project expects to realize when it gets adequate funding resources.
Create a Content-Rich Blog
Having an official and active website for an IEO project is important for the developer. Equally important is having an informative blog attached to the website. The blog should feature a lot of informative content and not just promotional material.
Reveal a Clear Funding Goal
There must be a clear funding goal with regards to the number of tokens that will enter the IEO sale. Also, the maximum funding requirement should be published. Establishing a properly laid out hard cap for funding assures investors that the business goal is practical and tangible. A hard cap means that the project developer is not just trying to raise as much money as possible.
According to the VP of Priority Token, Artur Boytsov, $6 – $7 million is the ideal hard cap for IEO funding.
Work with a Reputable Team
The experience, qualification, and reputation of the group of people behind any business venture directly influences the confidence of potential investors it is always advisable to have legal experts within the core team of a project together with technical and business experts. That blend ensures that investors know that professional opinions are present in case of any legal challenges.
All indicators point in the direction of an evolution of how different cryptocurrency products and projects raise funds. Nonetheless, potential investors should always take caution and do extensive research before investing.