Starting cryptocurrency with IEO? All the essential knowledge beginners should know

Initial Exchange Offerings (IEO) are a modern fundraising method where cryptocurrency projects sell tokens through exchanges directly to investors, instead of selling tokens directly to investors. By leveraging the platform of an exchange, projects can reach a broad audience and quickly establish credibility in the market.

What is an IEO? Understanding the Basics

An IEO is a token sale conducted in cooperation between a cryptocurrency project and an exchange. The exchange conducts the token sale on behalf of the project and lists the tokens immediately after the sale ends.

The biggest advantage of this method is that it allows trading in a more regulated and secure environment. It also helps the project establish a presence in the market instantly.

The IEO for Sui (SUI), conducted in spring 2023, became a hot topic in the crypto community. About 250,000 users participated, making it a highly noticed project. Currently, the price of SUI is $1.38, with a 24-hour change rate of -1.81%.

Clarifying the Differences Between ICO, IDO, and IEO

There are multiple approaches to fundraising in cryptocurrency:

ICO (Initial Coin Offering)
A traditional fundraising method where a project raises funds directly from investors without intermediaries. However, due to lack of regulation and frequent scams, its credibility has declined.

IDO (Initial DEX Offering)
Fundraising conducted on decentralized exchanges. It offers high liquidity and instant trading but lacks protection under centralized regulations.

IEO (Initial Exchange Offering)
Fundraising hosted by a centralized exchange. It involves a rigorous review process for projects, enhancing investor protection.

Why Has the Focus on IEO Increased?

Cryptocurrency fundraising has evolved significantly from ICOs, which had little regulation, to more structured and secure IEOs.

During the ICO era, many projects engaged in fraudulent activities and came under regulatory scrutiny. In September 2017, China and South Korea banned ICO activities. Vietnam’s Securities Commission declared ICOs illegal in October, and the Reserve Bank of India implemented similar restrictions in April 2018.

This shift became a turning point, leading to a move toward more reliable IEOs. Major exchanges launched launchpads, and projects like BitTorrent underwent strict reviews to raise funds.

How Does an IEO Proceed?

The IEO process generally follows these steps:

Step 1: Submission of Project Proposal
The project team submits a proposal to the exchange, including detailed business models, technical use cases, team background, whitepaper, etc.

Step 2: Rigorous Evaluation by the Exchange
The exchange assesses the project’s potential and verifies compliance with regulatory and security standards. This step is crucial for investor protection.

Step 3: Setting Fundraising Goals
Deciding on the structure of the IEO, such as hard cap and soft cap.

Step 4: Public Launch and Sale
Once approved, investors can purchase tokens directly through the exchange account. This process is simplified and secure.

Step 5: Token Listing
After the IEO ends, tokens are listed on the exchange, providing immediate liquidity to investors.

Benefits of Investing in an IEO

Security and Trustworthiness
Only projects that pass strict exchange reviews are listed, significantly reducing scam risks and building trust between investors and projects.

Immediate Trading Start
Tokens are listed right after the IEO, ensuring liquidity. It becomes easier to buy and sell compared to other tokens.

Regulatory Assurance
Exchanges hosting IEOs implement strict regulations like KYC (Know Your Customer), providing peace of mind for investors.

Access to Curated Projects
Exchanges select projects based on their reputation, quality standards, and growth potential, ensuring only promising projects are included.

Global Market Exposure
Utilizing the exchange network allows projects to reach a wide audience, potentially increasing token value.

How to Participate in an IEO

Create an Account and Complete Verification
First, open an account on the exchange hosting the IEO. Then, complete the KYC process, submitting identity verification documents to comply with AML (Anti-Money Laundering) regulations.

Deposit Funds
Deposit funds into the exchange wallet. Usually, cryptocurrencies accepted for IEO include Bitcoin (BTC: $87.42K), Ethereum (ETH: $2.91K), or the exchange’s own tokens.

Conduct Thorough Research Before Investing
IEO investments carry risks similar to other crypto investments. Carefully research the project details, team background, and technical feasibility before participating.

How to Evaluate IEO Projects

Deep Dive into the Project
Examine the project’s goals, problem-solving approach, and team background. Read the whitepaper thoroughly to assess feasibility and success potential. Past experience of team members is also important.

Verify the Exchange’s Credibility
Check the reputation of the exchange hosting the IEO within the industry. Strong security measures and a history of successful IEOs are key indicators.

Analyze Tokenomics
Review total token supply, the percentage sold during the IEO, pricing, and distribution schedule. Large holdings by developers can negatively impact the token’s price post-IEO.

Assess Market Potential and Feasibility
Consider how the project differentiates itself in the market. A feasible project should offer innovative solutions that meet existing market needs.

Be Wary of Warning Signs
Lack of information, transparency issues, overly ambitious goals, past failed projects of the team, or ambiguous regulatory compliance should be approached with caution.

Lessons from Successful IEOs

BitTorrent
One of the most notable successes, raising $7.2 million immediately after launch. Its large existing user base and the exchange’s network provided instant liquidity and trading opportunities.

Other Projects
Many successful projects on major launchpads have delivered high ROI. Selecting projects with strong growth potential and community support is key. These projects benefit from user-friendly platforms and the trust of the exchanges.

Polygon (formerly Matic Network)
Addressing Ethereum’s scalability issues with a clear use case, raising about $5 million. Its solid technical foundation contributed to its success.

Lessons from Failed IEOs

Weak Project Foundations
Projects with unclear value propositions and weak fundamentals tend to fail. Without innovative advantages, they struggle to maintain investor interest.

Lack of Transparency and Due Diligence
Failed IEOs often lack operational transparency or thorough exchange vetting, damaging trust.

Poor Market Timing
Launching during market downturns or periods of low interest in cryptocurrencies can lead to poor performance. Strategic timing is essential.

Regulatory Challenges
Projects facing regulatory hurdles may encounter deployment issues. Proper legal compliance and choosing compliant exchanges are crucial.

Risks of IEO Investment

High Price Volatility
IEO tokens can experience significant price swings after trading begins, potentially leading to substantial losses.

Changing Regulatory Environment
Evolving regulations can impact token value, especially if new restrictions are introduced in certain regions.

Liquidity Risks
While generally more liquid than some other launch methods, declining trading volume can make it difficult to sell tokens at desired prices.

Project Execution Risks
The success of an IEO heavily depends on the project’s ability to execute post-ICO. Unfulfilled promises or unforeseen problems can cause token prices to fall.

Limitations of Due Diligence
Exchange vetting has its limits; if project details are insufficiently verified, investors may face fraud risks.

Future Trends of IEO

Stronger Regulations
As markets mature, regulations are expected to tighten, making IEOs safer and more stable. This could attract institutional investors.

Advances in Blockchain Technology
Technological progress will enable future IEOs to offer more innovative and complex tokenomics, expanding investment opportunities.

Expansion into Untapped Markets
Entering various sectors will create more diverse investment options.

Tokenization of Real-World Assets
Expansion into representing real-world assets like real estate, stocks, and commodities as security tokens is anticipated. This will help bridge traditional finance and crypto markets, opening broader investment opportunities.

Deepening DeFi Integration
Integration with decentralized finance platforms will create new participation methods, token liquidity solutions, and trading options. Both CeFi and DeFi investors will be able to participate together.

Innovations in Fundraising Models
New fundraising models combining the strengths of existing methods are expected to emerge, providing more flexible solutions for projects.

Summary: IEO as an Evolving Investment Option

The cryptocurrency market remains optimistic about the future of IEOs, expecting continued growth and evolution. As global adoption progresses, IEOs are likely to integrate further with traditional finance, establishing standardized approaches across different regulatory frameworks.

While risks exist, market maturity will also bring significant investment opportunities. With proper research and risk management, participating in IEOs can be a valuable way for investors to diversify their crypto portfolios.