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Some experts in the crypto world believe that the growth of the ICO market between 2017 and 2018 is amongst the reasons why crypto became so popular with retail investors. In those two years, ICOs managed to raise about $16 billion. However, regulators soon after began to clamp down hard on them. A major reason was that fraudsters began to venture into the sector.
What is an IEO
An IEO is an acronym for an Initial Exchange Offering. As this name suggests, it is conducted on the exchange. The exchange issues it on behalf of the startup that wants to raise funds using its tokens. During the IEO, the startup pays a listing fee as well as a percentage of the revenue from the sale. In return, the startup gets its coins listed on the exchange once the token sale is complete. To participate in an IEO, users have to create an account with the exchange.
A New Era of IEOs
Various crypto exchanges have embraced the IEO concept. One of the exchanges to do this is Binance, which launched Binance Launchpad in January of this year. In that same month, BitTorrent launched an IEO on Binance. In just 15 minutes, the IEO had hit its hard cap of $7.2 million. While 15 minutes was impressive, another record was set soon after with Fetch.AI managing to reach its $6 million in 22 seconds. Various other exchanges soon joined the bandwagon. Some of the other exchanges to launch similar platforms are Bitmax, Bittrex, Kucoin, Huobi, and OKEX.
Why IEOs are the Future
- They Offer Credibility
Most crypto exchanges face tough regulatory scrutiny. As a result, it is incumbent upon them to take stringent measures to scrutinize each token before they list it on their IEO platform. They also have the resources to scrutinize and vet it. Due to their experience, they are more capable of determining if a token sale is a scam or not.
- A Better Reputation
Due to various scams, ICOs have developed a reputation amongst investors and regulators as scams trying to swindle people. By being listed on a reputable exchange with a long history, increases their reputation and users are more likely to participate in the tokens sale.
- Instant Listing
Once a project is listed in an IEO, its tokens will be listed almost instantly once the token sale is over. Investors do not have to wait for the tokens to be minted; the project mints the tokens first and then sends them to the exchange.
- AML and KYC are Covered
Most ICOs simply lack the ability to conduct thorough AML/KYC to the chagrin of regulators. Since exchanges have better tools to do this, it reduces the risk that a token sale will fall foul of regulators.
Binance, the largest crypto exchange, and other exchanges want to make the token sale space safer for investors, which will be much easier to achieve with IEOs. They could be the future of how projects raise funds.