If you are into the cryptocurrency and you have not heard about IEO (Initial Exchange Offering), then you must be living under a rock. Shortly after the epic fail of ICO (Initial Coin Offering) because of prevalent scams, IEO came into the picture with a solution. What’s the solution? And How effective is the solution? Let’s find out in today’s post.
What is Initial Exchange Offering?
People usually call it the modern and updated alternative to ICO and that is true. IEO is an ICO but with a shortcut. Most of the people believe that it will make ICO dead. But what is it?
Initial Exchange Offering is backed by an exchange. In IEO, the company with the proposal pitches the cryptocurrency exchanges rather than investors directly (the shortcut). Now, the exchange screens the proposal and takes thoroughly scrutinize the offer. The exchange cannot take risks in this matter because their reputation is on the stake. After this, the exchange makes the IEO public on its platform for its users to invest in.
Did you know that 80 percent of ICOs in 2017 were scams? Now, that seems like a problem to fix. The exchange’s thorough process for selection makes sure that an IEO is not a scam and can be trusted to a great extent.
So, does that mean IEO is the solution?
While IEO has solved a relatively large problem, it still has its drawbacks. IEOs will still suffer from the problem of getting dumped on the day when its trading starts. So, as an investment, this makes IEO look bad. This is a nightmare of IEOs. Ocean Protocol lost 80% on its first trading. Even this problem needs an urgent solution.
IEOs are still prone to scams as the exchanges hold the manipulation now. A recent post on Reddit by nakamuchy tells us how we can still be scammed by the exchanges. On the day of the offering, bots accumulate a huge chunk of the available tokens leaving only a few for ‘public’.
On the next sale, the tokens are sold for higher prices showing that the demand has increased. Seeing this sudden appreciation, people get FOMO, and they buy the token thinking that price will increase.
However, there is no denying that the number of scams has decreased ever since IEO came into popularity.
Another problem with IEO is that it limits the audience for the offering company. It can sell the coins only to those who are registered on the exchange. The company can still advertise its all-new offering and attract customers from other exchanges as well, but the conversion rate will be low. That is because, for new customers, there is a KYC process on the exchange. The KYC process takes rather long and can be a demotivating factor for the potential new users.
What can be inferred?
We have been flashed with all the positive aspects of IEO but only a few talks about reality. IEO, on theory, may sound like a great plan but in the real world, we need an adaptive method which iterates itself with time because scammers are never going to stop. IEO definitely curbs the problem of companies being fake but what will we do when the exchange scams us? Here we are just dealing with exchanges in good faith but no proofs.