Advantages of Initial Exchange Offerings
When the Bitcoin made its first appearance more than a decade ago, little would have been the vision of the creators that the underlying technology would revolutionize the world of finance and Investments. Blockchain has been instrumental in transforming the way in which transactions happen – thanks to its inherent properties of immutability, security, and transparency which are of paramount importance in the world of finance.
The potential of the blockchain was rightly capitalized by crypto companies that were seeking investments for their projects. In an effort to keep the funding outside of a centralized body including Governments and regulatory authorities, Initial Coin Offering (ICO) was introduced.
An ICO is a way to raise funds for projects by which investors get to use the product or gain special concessions to services. Since the entire process of issuing tokens on an ICO is highly unregulated, the vast instances of scams and malicious practices have marred and tarnished the image of the ICO. Regulation and compliance started to gain prominence.
At this juncture, to counter the problems that arise with scams and to protect the interest of the investors,, Security Token Offering (STO) was introduced. STO, as the name implies is a security and it falls within the control and regulatory requirements of the Securities and Exchanges Commission (SEC) or any other congruent regulatory body in any country. This not only ensures that the companies do not resort to any fraudulent practices but also limits the number of investors.
Also, the legal procedures required to establish compliance with various sections had its own costs, both in terms of time and money, which rendered STOs relatively expensive. While it promised security, it had not seen the fame and adoption of its precursor, the ICO.
What if there was a convenient option to retain the essence of an ICO, ensure as much security as possible? The answer to this million dollar question, literally, was given by Initial Exchange Offering or IEO.
An Initial Exchange Offering, as its name suggests, is conducted on the platform of a cryptocurrency exchange. Contrary to Initial Coin Offerings (ICOs), an IEO is administered by a crypto exchange on behalf of the startup that seeks to raise funds with its newly issued tokens.. As the exchange is already buzzing with activity and transactions, you do not have to emulate them to establish liquidity. Also, since the exchange takes the responsibilty of scrutinizing the company, the chances of fraud are quite less. The exchange has its own norms of validating a user, thereby, reducing the burden on the company to complete KYC/AML process. IEO brings about a lot of advantages to both companies and investors.
It has to be agreed that there is a cost involved in listing your token on an established exchange. In addition, there are chances that the exchange will demand a certain portion of your crowdsale percentage and also take a commission on every sale. While this might, the surface, seem like an expensive affair, it is a good tradeoff for the pain of establishing legal compliance and marketing your tokens.
In spite of all these advantages, IEOs did not get their well-deserved recognition yet, and like any revolution, it has to suffer its resistance before acceptance. We have seen established exchanges like Binance embrace IEOs, and we have also seen companies like BitTorrent raise their funds through IEOs. It is just a matter of time before the crypto community accepts IEO as a big bliss and a massive step forward.
Author Bio
Patricia Dixon works as a Business Analyst at Blockchain App Factory. She has a masters degree in history but prefers to archive and examine all things digital or technical. During the weekends, you may find Patricia exploring the countryside or reading Japanese manga at the local coffeehouse.
