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Initial Exchange Offering (IEO) vs Initial Coin Offering (ICO): What Are the Differences?

By March 13, 2019 No Comments

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Is the Initial Exchange Offering a new trend in 2019?

OK, let’s get to the point here. We’re not going to tell you how ICOs boomed in 2017 to early 2018. And we’re not going to stress on how billions of dollars were raised during that period of time. We’re just going to give you a simple comparison of the two models, from the point of view of an investor.

What is an Initial Exchange Offering?

Simply put, unlike an ICO (initial coin offering), an IEO (initial exchange offering) is not open to the public. You’ll have to be a user of the hosting exchange to participate in the token sale. While an ICO allows any contributors to buy the token for sale by sending funds into a specific address, an IEO requires contributors/users to buy the token by using the exchange’s accounts.

Isn’t an ICO supposed to be better?

Putting all other factors aside, maybe.

As the model is open to everyone in the public, it allows the project team to raise more capital, theoretically. But wherever the money goes – frauds and scams cannot be far behind. This is also one of the biggest reasons why ICOs cooled down in the past year. Scammers exploited the opportunity to raise funds without delivering the promised technology.

Is an Initial Exchange Offering the Old Wine in a New Bottle?

No. The biggest problem with ICOs is that they’re not monitored by any third parties. Basically, anyone can launch an ICO, as long as you have a white paper to convince investors to put funds into your company.

On the other hand, an IEO is a very, if not entirely, different model. While both ICOs and IEOs share the rationale of an initial public offering (IPO), in an IEO, the exchange becomes an administrator.

To conduct an IEO, the project team must meet and comply with the exchange’s requirements in order to launch the token sale. Contributors are, therefore, protected by the exchange.

Although some may argue that the exchange may go along with the project team to scam customers, this will put the exchange’s reputation at risk. Exchanges that look for a sustainable business model would not consider taking such an unethical move.

Instead, the exchange is risking their credibility when doing IEOs, since it has no control over the IEO project team’s operation and product delivery as promised in the latter’s white paper. To maintain trust with its customers, the exchange must carry out a comprehensive assessment of the project before launching the IEO. This provides an extra layer of protection to contributors.

Compared to ICOs, the risk of IEOs is much lower for both the project team and contributors.

On the customer’s side, not only will the exchange help them review the projects and filter out scams, but it also provides better liquidity for trading afterward as a large user base is already guaranteed. The exchange will also offer a convenient platform for contributors to manage their funds as all assets can be stored in the exchange account instead of different wallet addresses.

For project teams, they are eased of operational hassles. For example, all the exchange users have been vetted by the exchange’s KYC/AML verification. The exchange will also provide liquidity with its user base, and also help on marketing promotions.

With all the scams and frauds out there, an IEO is no doubt a better model for the contributors/customers. Despite more processes required for both project teams and contributors for the token sale, the extra protection offered is worth the cost.


Risk Warning: Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

This post originally appeared on Medium. Read more.

OKEx is a world-leading digital asset exchange headquartered in Malta, offering comprehensive digital assets trading services including token trading, futures trading, perpetual swap trading and index tracker to global traders with blockchain technology. Currently, the exchange offers over 400 token and futures trading pairs enabling users to optimize their strategies.

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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