Definition:
An Initial Exchange Offering or IEO is a cryptocurrency fundraising event that is overseen by a cryptocurrency exchange.
Understanding the term:
In the case of an initial exchange offering, a cryptocurrency exchange oversees the token sale. There are advantages of conducting an IEO compared to an initial coin offering. Projects going for an IEO have to go through a comprehensive vetting process where their whitepaper is scrutinized. Their crowdfunding drive also gets more publicity. On the other hand, the project team themselves conduct the fundraising in case of an Initial coin offering. From a cryptocurrency user’s point of view, taking part in an IEO is easier as they do not require managing on-chain transactions using different wallets and blockchains. A user only needs a single account on the exchange conducting the IEO and the funds in their account. For a new cryptocurrency project, an IEO offers the promise of immediate publicity, allowing them to focus their efforts on the development of their product. However, there are several advantages of IEOs. The listing and marketing fees for some of the biggest exchanges are steep for most startups. There are also no clearer rules for IEOs compared to ICOs. For the issuers, IEOs can incur additional costs for the issuers while investors have to pass verification. Lastly, there is a high degree of legal uncertainty because it is centralized in nature. Thus, IEOs cannot protect the interest of investors.
Takeaways:
Exchange platforms that conduct IEOs perform a multitude of checks before commencing a sale, as their reputation is also at stake. However, IEOs can mean additional costs for the issuer and can pose stringent verification requirements for investors.