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What is an IEO and How Do They Work?

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IEO stands for Initial Exchange offering. An IEO is a unique cryptocurrency fundraising method. Crypto companies use IEOs to raise capital to fund their business ideas by selling their own cryptocurrency. 

IEO investors look out for promising opportunities. They do their research and find companies with promising business ideas. If they find one they like the look of they invest to get in early, hoping to make a profit. 

How Does an IEO Work?

The process is simple. A project has a strong business idea and decides that to support their goals they need a token. They create a token that is tied to their project and partner with an exchange to sell tokens at a set price. 

Investors buy these tokens to fund the development of the project, hoping that the project will be successful and cause price appreciation of the token. 

For example, if you have the idea to create a blockchain based game that uses tokens as in game currency, you could host an IEO. You would sell your tokens through an exchange and investors would want to buy because they believe the game is going to be a success.

Flash forward one year and the game is highly successful causing the tokens to be in high demand. The company is generating a profit every month, which could have only been achieved by raising enough starting capital to continue development. Investors are happy because they received a great return on investment due to the success of the game.

The Origins

Before IEOs we had Initial Coin Offerings (ICOs). These were massively popular and hugely successful. Many investors made jaw dropping returns by investing in ICOs during 2017. However, as the space grew, things changed. 

During 2018 the crypto space became more mature and ICOs performance dwindled. Meanwhile, cryptocurrency was in a bear market that pushed a lot of people away. Prices weren’t shooting up like they once were and as a result, people were less willing to take gambles on new projects.

To revive the ICO scene exchanges began to host ICOs on their platforms. This is where the name transitioned from Initial Coin Offering to Initial Exchange Offering, as exchanges were now hosting the capital raising initiatives. 

ICO vs IEO

The transition to IEOs made the investing process easier and safer. A lot of ICOs were self-hosted which lead to major issues such as data leaks, lost or stolen funds and unfair investment terms. When hosted on an exchange, an investor trusts the exchange instead of the token issuer. Investors no longer have to send their money to a unknown address to invest in an ICO. 

IEO, ICO, What is an IEO?

Exchanges complete due diligence prior to hosting IEOs, which exposes investors to less investment opportunities but increases the likelihood that they are investing in a legitimate project. Sadly, a huge number of ICOs in 2017 turned out to be scams. Exchanges don’t want to support potential scams, so they are careful with the IEOs they host. 

Taking part in multiple ICOs was a pain. You would have to share your data and complete KYC multiple times, exposing yourself to risk. With IEOs you only share data once and it’s with an exchange that you trust. 

Taking Part in an IEO

If you’re feeling ready to take part in an IEO, just make sure you do substantial research before you dive straight in. There have been some very successful IEOs… but there have also been many failures.

Keep your money close by being certain you’re investing in something with longevity.

Alex Aves
Alex is a crypto enthusiast that has been enthralled with the crypto space for over two years now. He currently works in the marketing team for Liquid, one of the leading crpytocurrency exchanges.

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1 Comment

  1. Thanks for the article! It was exceptional. Yes, I agree that Initial Exchange Offerings to be the future of fund raising mechanism.

    To know more about IEOs, you can refer Zab Technologies.

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