What is an IEO?

by | Apr 22, 2021

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There’s no doubt the crypto ecosystem is full of such acronyms and it can be hard for a newcomer to find her way through all these jargon. There are ICOs, STOs, IEO, IDO and many more. Therefore, we’ve created a guide for all these acronyms in our blog post – Cryptocurrency Terms for Dummies. Follow the link to get yourself acquainted with all crypto jargons.

Now, coming to IEO that stands for Initial Exchange Offering. Basically, similar to ICO (Initial Coin Offering) and STO (Security Token Offering), IEO is just another mechanism of raising funds for a cryptocurrency project in a crowdfunding manner. So, let’s dig deeper into the difference between all these mechanisms and how IEO is different from the rest.

The ICO Boom and Bust

In the year 2017, we witnessed a massive boom of ICOs all around the world with various projects raising millions of dollars in a crowdfunding manner. The concept of ICO made a path for an innovative way for startups to raise funds without knocking at venture capitals’ doors. For the first time since the internet came to existence, ICOs made it possible for startups to raise funds by reaching directly to a larger audience.

However, it wasn’t that open and fair as it might sound. With the ICO-mania in rise, a lot of projects raised thousands if not millions of dollars and just disappeared with investors’ money. These projects turned out to be outright scams pulling rugs on their investors. On the other hand, some projects were not outright scams, but ended up burning all the funds and went out of business.

In essence, a lot of retail investors lost their money and hence the United States SEC(Securities and Exchange Commission) has to step in. Since the regulations got tighter around ICOs, the crypto world was left to find another way. The SEC made it clear that it considers the ICOs offering utility tokens as securities and the startups can’t just hide from the regulators anymore.

Note: Find more about utility vs security tokens here. 

The Rise of STOs

STO stands for Security Token Offering. Since the SEC made it clear that startups have to abide by the regulations to raise funds, a new concept emerged – STO. Now, the crypto startups found a way to raise funds in exchange for company’s equity, similar to that of the traditional stock. 

However, here’s the key – the security tokens offered in STOs are tokenized versions of an equity. These security tokens are recorded on the blockchain, a distributed ledger while enabling the token holder to be entitled for the company’s stake. Thus making it a win-win situation for both startups and regulators.

What is an IEO?

Now that you’ve understood the story behind ICOs and STOs, let’s get to IEO – Initial Exchange Offering. IEOs, as the name suggests, are basically a new form of ICOs that are managed by cryptocurrency exchanges. So instead of a startup or company raising funds on its own by selling the tokens to retail investors, IEOs are facilitated by trading platforms.

Thus making the whole process more credible as the trading platform takes the responsibility of doing due diligence about the startup for the concern of its users. Furthermore, IEOs are facilitated by centralized exchanges, thus providing additional security of funds and vetting their user base by conducting prior KYC. 

How Does it Work?

Here’s how it works. The company willing to raise funds pays the required fees to a trading platform and transfers the amount of tokens to be sold to the public via IEO. In exchange, the trading platform takes care of marketing the IEO, handling and securing funds, vetting investors, and listing the tokens.

Once the IEO is successfully conducted, the trading platform immediately opens the trading for the given token. Also, most of the IEOs offer utility tokens and to avoid regulatory clampdown they are usually not available to the US based investors.

Conclusion

Well, that’s all for today. I assume you’ve understood the concept of ICOs, STOs, and IEOs. Although there’s one more term related to the above acronyms and that is IDO. Initial Dex Offering or IDOs are just another form of IEO. The only difference is IDOs are conducted through a decentralized exchange (Uniswap, PancakeSwap)  whereas the IEOs are conducted through centralized exchanges such as Binance, FTX.

Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"
Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"

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