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IEO |
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An Initial Exchange Offering is similar to an ICO in so many ways. However, there is one key difference: an ICO is offered on a cryptocurrency exchange platform. Exchange platforms are the companies that facilitate the trading of digital assets.
The cryptocurrency exchange platform will be like a third party in this process. The project will seek the services of an exchange, which are normally offered at a fee, and the exchange will float the tokens on behalf of the project. Just like in ICOs, an IEO allows an investor to buy the tokens before they are officially launched in the market, creating room for major returns.
Because the cryptocurrency exchange will be facilitating this process, the projects that want to raise their funds through this method have to ensure they provide all the details that will make their projects appear more authentic. The project has to submit a proposal that will be rigorously reviewed by the exchange supporting it. Exchanges have to perform due diligence to preserve their reputation.
IEOs offer various benefits to the projects, and one of these is that they can lure many investors. The fact that they are vetted by exchanges also means that once the presale is over, the token will be listed on the exchange, boosting its liquidity as soon as it enters the market.
Pros
The main benefit is that the projects have to pass due diligence. This lowers the risk of an investor falling victim to scam projects in the cryptocurrency market.
The other benefit is that a token listed through an IEO will have higher liquidity on the exchange where it has been listed. The token will immediately gain access to a large user base, boosting its values as the level of demand grows bigger. Moreover, listing on the exchange will also act as a marketing strategy.
Cons
While an IEO is less risker than an ICO, there is a tradeoff. An IEO is more centralized, which limits your access to the token to a specific exchange. To participate in the IEO, you have to create an account on the exchange platform. This could not be ideal for investors that prefer the full decentralization aspect of the crypto market.
Even though the project has been vetted, this does not protect it from the volatility of the crypto market. Moreover, the SEC has also warned that some IEOs can be as risky as ICOs if they fail to comply with the federal securities laws. |
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