How to Invest in an IEO?
How to invest in an IEO may be the question you want to know its answer, if you are considering doing so.
Initial Coin Offering (ICO) and similar models like Initial Exchange Offering (IEO) and Security Token Offering (STO) are the Blockchain-based methods for raising capital for start-ups that are looking for a way to introduce their tokens to the market.
While ICO (Initial Coin Offering) was not able to meet the expectations, IEO (Initial Exchange Offering) came into existence.
It was an alternative to reduce the risks of scams, one of the biggest downsides of ICO.
Here we want to explain what IEO is and what how to invest in it.
What Is an IEO?
What Is an IEO? IEO is short for Initial Exchange Offering. It is an alternative for ICO (Initial Coin Offering).
It is actually a more secure form of an ICO that exchanges raise capital for start-ups. The crypto exchanges act as middlemen here. With IEOs, the project owners offer new cryptocurrencies or new tokens to investors. They raise funds for their business, and investors can benefit from increasing the value of purchased tokens if the project is successful.
Initial Exchange Offering (IEO) was first offered by Binance as a new alternative way of fundraising since Initial Coin Offering (ICO) was not very successful in raising capital.
Binance is a cryptocurrency exchange that provides a platform for trading different cryptocurrencies.
During IEOs, tokens are not sold directly to investors. Instead, they are listed on a crypto exchange platform. The crypto exchanges actually handle all the token sale process themselves. In return, they receive a listing fee and sometimes a percentage of the token sale.
IEO is now considered the most prevailing trend in the cryptocurrency industry.
However, there is something that has to be considered. Unlike ICO, IEO is not open to the public because only the exchange users can participate in it.
Now that you figured out what IEO is, let us talk about how to invest in an IEO.
Essential Steps for Investing in an IEO
Although IEO (Initial Exchange Offering) is considered to be much safer than ICO (Initial Coin Offering), there are some important things that you may want to consider before starting your investment.
Here they are listed:
Although exchanges have rigorous rules to list IEO projects on their platforms, it is better to research enough to reduce the risks ahead.
This research should not only be about the IEO but also about the exchange too.
This is because both exchanges and the token issuers will benefit from attracting a large number of investors. So they can be a bit dishonest while introducing the project to investors.
Therefore, check out the team members to see if they are experienced enough and have had successful projects before. Research about the exchange to find out if it has a good reputation.
Check Out the Work That Has Been Done So Far
You have to look for their website to realize the work they have done so far. There should be a whitepaper explaining every detail about the project.
They have to mention the project goals, the amount of money they need to start the project, and the technology they use. If they have not provided these things yet, there is something fishy about it, and you better let it go.
Find the Exchanges Offering the IEO
IEOs can be listed on several crypto exchanges. Therefore, you need to research and find the ones that offer the IEO project you want to invest in.
After choosing the safe ones, you have to create an account on them because as we mentioned before, IEOs are only open to the exchange registered members.
Check out the registering process of the exchanges because different platforms have different requirements. For signing up to the exchange platform, you need to complete the KYC/AML process.
It is better to register in the exchange a few days before the IEO launch because the process can be time-consuming.
Check Out the Accepted Currencies
After signing up to the exchange platform, you have to fund your account to be able to buy IEO tokens later.
Most IEOs support cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). Some also accept fiat currencies such as US Dollar (USD), Great British Pound (GBP), and Euro.
Plus, some exchanges offer their own tokens to the investors.
Pay Attention to the IEO Tokenomics
You, as an investor, have the right to know how IEO tokens are distributed. You have to recognize the token percentage that is assigned to the token issuers and the amount that belongs to the investors.
If the token issuers are the ones who receive the majority of the funds, it cannot be a good sign.
The Benefits IEO Has for Investor
1. One of the main drawbacks of ICO is the risks it has for investors to get scammed. IEO is safer for investors than ICO, and they are more protected. In IEO the fund is raised via an exchange on behalf of the token issuer.
This makes IEO a safer investment as exchanges are more well-known, and they do not risk their reputations for an IEO project. Therefore, they make sure that the project is achievable. In this way, the scammers cannot take the investors’ money and disappear.
2. IEO has more liquidity than ICO. Investors can benefit from buying IEO tokens from the moment they purchase them because the tokens already have value. Also, as soon as the token is listed, its value increases.
Hence, you, the investor, can hold the tokens you purchased and wait until they cost even more. There is another option too. You can sell the tokens immediately and make a profit over them.
3. Investing in an IEO project does not need a third-party wallet. When you create an account on a crypto exchange, wallets automatically appear, and you can use them to store your tokens.
4. The IEO investment process is not complicated at all. So you do not have to worry about not knowing what to do. The only thing you have to do is to register on a crypto exchange platform that hosts the IEO, fund your account with a currency or cryptocurrency such as ETH or BTC. Then wait for the token sale and purchase them. After doing so, you are an IEO investor. You can enjoy the upcoming benefits.
5. In IEO, everybody buys the tokens at a set price. This means that the possibility of falling in rates from early investors will reduce. Early investors are the ones who purchased the IEO tokens first.
The Risks IEO Has for Investors
1. Although participating in IEOs is simple, joining the large ones are not quite easy. This is because there are so many investors contributing, and you can easily be left out. The token sales can be over in a minute, and you might not have enough time to buy tokens.
2. As we mentioned before, IEO came to address the scam risks of ICO. However, even if crypto exchanges be too strict and checks out the requirements while choosing the IEO projects, it is still possible that you get scammed. Besides, IEO is a new fundraising technique, and there are not so many exchanges hosting the IEOs to let you compare the different ways they function. Therefore, the risk is not completely taken away.
3. There is another issue in IEOs, and that is related to its regulations. It is not regulated as it is supposed to be. The way IEOs are launched and the process of token sales is not optimum.
The IEO market is growing so fast, but there are no good business models. The tokens that they offer to investors can be manipulated by the token issuers. Also, crypto exchanges encourage people not to sell their tokens and hold them for a long time, which seems a bit fishy. Furthermore, IEOs are growing because of the market supply, not because they are profitable.
The Bottom Line
Now that you know how to invest in an IEO and found out about the advantages and risks ahead, you can better decide if this is for you or not.
ICO was highly welcomed by the investors in 2017 and 2018. But after investors realized that most of them were conducted by scammers, it became less popular, and so many countries banned ICO launches.
Unlike ICO, IEO added some technical changes and claimed to be more reliable and secure.
As crypto exchanges are responsible for launching IEO, it is safer for both token issuers and investors. It has so many benefits over ICO, and this is why many believe that IEO can be the next fundraising boom in the future.
However, it is a newly-found technique, and we need more time to decide whether it is that efficient as most people think.
Is IEO Safe?
YES, it is safe to invest.
Some believe that Initial Exchange Offering (IEO) is a new version of Initial Coin Offering (ICO). IEO and ICO are both techniques for raising capital for start-ups that want to introduce and sell their new cryptocurrency tokens.
However, the main difference between these two is security. IEO is much safer, and that is why people consider it as a better version of ICO.
But, why is IEO safe?
The reason is that Unlike ICO, IEO uses crypto exchange platforms as a third-party to distribute tokens to the investors, on behalf of the project owner, or let us say, the token issuer. In this way, only the users of that exchange are able to join the project.
Anybody can launch an ICO, and you do not know if it is a scam or not.
Besides, you cannot be sure that they are experienced enough to fulfill their promises. If they fail, there is no guarantee to take back your money.
But IEOs are conducted by the exchange platforms, and they are so careful while choosing the IEO projects because they do not want to ruin their reputation.
So they always choose the ones whose goals are achievable and reasonable. This is why IEO is considered a safe investment opportunity.
How Do I Participate in an IEO?
Participating in an IEO includes some simple steps.
As you may know, IEOs are conducted by crypto exchanges. So if you want to invest in an IEO, you need to check out the crypto exchanges that host the IEO project you want to participate in.
See if they have a good reputation and are well-known.
Although IEOs are safe to invest in, researching carefully before choosing one is a good idea.
After choosing the right exchange platform, you need to register in that crypto exchange platform and create an account. There are KYC and AML verification processes that you have to complete.
Next, you have to look for the accepted cryptocurrencies for the IEO project to fund your exchange account with that cryptocurrency. Most IEOs accept ETH or BTC.
After funding your account, you have to wait until the token sale begins.
Then you are able to purchase IEO tokens to be an IEO investor. Do not forget that some IEO token sales can be over in a minute. You have to be watchful to join as soon as possible.
How Do IEOs Work?
The IEO process is quite simple. Let us explain it in an easy way.
When a start-up team comes up with a Blockchain-based idea, and they need to sell their crypto tokens, they use a crypto exchange platform.
Therefore, they choose a crypto exchange platform to sell their crypto tokens there. To convince the exchange to host their token sale, they need to create a whitepaper. This whitepaper has to include all the information about their idea. Their idea has to be unique and achievable to make the exchange platform accept it.
If everything goes well, and the exchange platform accepts to host their project, their tokens will be listed on the exchange. In this way, they use the exchange users to sell their tokens and raise funds. In return, they have to pay listing fees and a portion of the token sale to the exchange.
Now, what about investors who purchased the tokens? If the IEO becomes successful, the price of the tokens increases. Then they can sell them at a higher price.