When Fetch.AI crypto token was introduced via the Binance Launchpad last month, the token fund-raising project took 22 seconds to complete and raised $6 million. Before that, the entire volume of BitTorrent tokens were sold in 18 minutes for $7.2 million on the same Launchpad characterized by a high level of activity. The new token fundraising projects are good examples of the relatively new type of fundraising model now known as initial exchange offerings (IEOs).
Initial Exchange Offerings or IEOs are a relatively new form of fundraising in cryptocurrencies comparable to Initial Coin Offerings (ICOs) and Security Token Exchanges (STOs). Like ICOs, IEOs involve a company selling tokens to subscribers but in this case, the exchange is responsible for smart contract that accepts money to buy the tokens and the exchange receives the money and sends the tokens to users/subscribers.
The developer/to-be token issuer will mint their tokens on their desired platform and then send those tokens to an exchange. The exchange may be tasked to sell all or some of the tokens and may also be paid in tokens. Different cryptocurrency exchanges that allow IEOs may charge different fees and in different currencies (flat fees, variable fees based on other factors) depending on the arrangement.
While an ICO involves a developer or token issuer selling tokens directly to customers/users/subscribers, there may be reasons and situations under which the issuer/developer may want to engage a cryptocurrency exchange and therefore desire an IEO. This is despite the fact that the exchange will act as a sought of middleman.
One of the obvious reasons is that the cryptocurrency exchange can perform marketing and promotion of the token and therefore stand a better chance of selling more tokens. And because most token issuers/developers aren’t experts in ICOs or STOs, a cryptocurrency exchange that has more expertise may be more helpful.
Of course, crypto exchanges may have more users already who are trading on the platform and even those verified for AML/KYC policies and regulation. Therefore, when a developer/token issuer uses a crypto exchange to announce or issue a token, it may be easier to reach more customers more quickly and easily by promoting the token and its benefits to already existing cyptocurrency exchange users.
Otherwise a developer/token issuer will need to conduct their own KYC/AML or rely on third parties to do so as well as spend more money promoting the token to new users. Plus a crypto exchange that is doing IEOS may want to do marketing and legal compliance as service add-ons or bonuses not paid for.
There are advantages and disadvantages of each approach, however.
A token developer/issuer interested in IEOs can also have its own requirements for the IEO issuance. For instance, the developer/issuer may require the tokens be sold at a fixed price throughout the process. They may allow the exchange to vary the prices or require a maximum limit that is to be sold to a single investor. They may also allow the crypto exchange to adjust the hard or soft cap depending on the success of the token sale.
The token issuer or developer may also have multiple crytocurrency exchanges participating in a single IEO and in other cases, the IEO are conducted by a single crypto exchange. They may also require accepting one or different other tokens/cryptocurrencies such as BTC for exchange with the tokens being issued. IEOs are announced by the exchanges conducting them in addition to being announced by the developer/issuer.
Why would you want to buy a token via IEO as an investor?
As already explained, all IEOs are issued through cryptocurrency exchanges, and most of them are meant for being promoted to users of those exchanges who have already signed up with the exchanges. Thus, a token buyer will reduce risks of participating in new token investments and will in most cases avoid scams given that responsible crypto exchanges may be unwilling to promote scams on their platforms.
Further, the exchanges may require the new IEO projects to undergo through certain steps and verifications to reduce those risks. While it may not guarantee the success of the project after the sale, it may help The crypto exchange team also before announcing the IEO on their platform, conducts a preliminary audit and technical verification of the project and its tokens to assess the project’s investment attractiveness and potential. And that’s huge because a study by Satis Group found out that approximately 80% of ICO projects are scams with $1.9 billion raised in 2017 through ICOs, $1.34 billion going to fraudsters. Plus many investors stand unprotected given the weak legislative framework around ICOs.
Besides market access, users who participate in an IEO get new tokens into the same crypto exchange wallet and this means they are easy to handle and transfer between the accounts and access the wider crypto market.
Another big advantage is that the token gets listed immediately by the crypto exchange after IEO as part of the deal with the token issuer/developer. There is no waiting time for listing, and this creates urgent demand for the token which benefits investors and token holders by having the price going up. For ordinary ICO tokens, a lot may happen during the development stage when the token is not listed on exchanges in between the ICO time and when the token is listed for trading on an exchange(s) – projects may fail, demand may depreciate and enthusiasm for the token may go down.
Again, the investors may derive some benefits latter if the quality of the project as assessed by the crypto exchange team before the IEO, helps in the future survival and demand of the project in the market. There may be lower chances of token being delisted etc.
The third benefit is that a user who is already a member of a given exchange may never need a different sign-up to participate in the new token investment. If the user has already gone through KYC/AML verification, they may never need to do so in order to participate in the token sale or investment.
The problem is when a user who is not yet a member of an exchange wants to participate in the IEO because they would need to sign up with the exchange and go through KYC/AML verification, which may take time. If the account is not allowed on that exchange, it means the user will not participate in the IEO.
Looking at the examples of the IEOs already conducted there are a number of issues raised. For instance, given the short duration with which each IEO is carried out, many users willing to participate are unable to participate. Probably because these projects are highly rated than any other ICO projects and they have a good backing.
Why a startup or token issuer/developer would want an IEO
A startup or developer or issuer who raises funds via an IEO does not need to spend funds separately for AML/KYC certification for users/investors who are participating. The startup also benefits with instant listing on the exchange for their new token and this listing fee is charged as part of the launch fee, which means it could be lower. Listing means demand could go up within no time of developing the token as the trading will start soonest.
Once trading has started, there may be reduced chances for price manipulations. For ordinary ICO fundraising, manipulations for instance may happen when whales who participated in the pre-sale stages at discounted rates sell their tokens when markets open. Even if the whale is selling the token at the main ICO price when the market opens, they are already making 50% profit, which will put downward pressure on the market and cause the price to go down. While IEO will not stop this from happening, they can reduce price manipulation.
A startup will also access the exchange’s existing user base at a lower cost which means they avoid spending millions of money on marketing and promotions before the sale.
Many startups issuing tokens are interested in working with a crypto exchange they know and can trust and even though it may be more costly to work with a more popular exchange, the token project may gain more credibility from working with a trusted and credible exchange. You avoid the risks and doubts that customers might otherwise have when you are not holding token fundraising through the exchange – for instance being new in the market means a good number of people may have doubt on your offers or approach more cautiously.
Benefits for crypto exchanges
For cryptocurrency exchanges, the token users acquired via the IEO may finally become regular users of those exchanges. The exchanges may also benefit from massive influx of new users and their deposits when an IEO is announced because people who are yet members may then sign up to participate in the IEO. That’s huge benefits for a cryptocurrency that has own platform token because the exchange may require that the tokens being issued are sold for and paid by the platform token during the IEO sale.
Exchanges with a good history of hosting legitimate, high-quality projects and IEOs ends up with more publicity and even more users who want to participate in the IEOs. It may be a good chance to market an exchange with a powerful project. Besides, it also generates more trading fees on the exchanges in addition to the cost of the IEO charged by the exchange to the developer/issuer.
Crypto Exchanges with IEO platforms
There is already a good number of exchanges with platforms dedicated for IEO as part of their services. These include Binance’s Binance Launchpad, Bittrex International IEO, BitMax Launchpad, Huobi Prime, KuCoin Spotlight and OKEx IEO. Other exchanges with IEO include Exmo, Cobinhood, Coinbene, Probit,
Binance Launchpad, which is the pioneering IEO platform, has so far recorded a number of successful IEO projects including a decentralized bank Bread, Gifto token for the live streaming app Uplive, BitTorrent (BTT), Fetch.AI (FET) and Celer Network (CELR). Although the platform was started in 2017, it went into hibernation for almost two years but has recently been revived with BitTorrent (BTT), Matic, Fetch.AI (FET) and Celer Network (CELR) being the latest to take place (2019).
Celer Network, for instance, was sold at 1 CELR = 0.00043400 BNB or $0.0067 USD rate where 3129 contributors bought 597,014,925 CELR tokens. The price is now around $0.018 for an individual token at a 24hr volume of around $17,784,288USD.
With Binance Launchpad, startups willing to launch and sell token can have the project exposed to more than 10 million Binance users and potential investors. To qualify a project for the launchpad, Binance considers a number of factors including the relative maturity of the project development, readiness for large-scale adoption, strength and commitment of the team, and potential to benefit the wider crypto ecosystem.
Binance crypto exchange compiles a detailed review of each project that is to be or is already listed so that the users can learn what exactly they are getting into and why they are backing the platform. Users also get furnished with details such as the duration stay after IEO when the tokens are distributed, hard cap, supply, token type, sale time and end time, allocation, individual cap or limits, minimum purchases, and token price.
Regarding participation, any user who is KYC-verified on his account can participate in the IEOs hosted by the platform and buying takes place on a “first come, first serve” principle. Besides, the crypto exchange puts limits regarding the amount of tokens a user or investor can purchase and this limit varies from project to project. There are also limits on countries to participate. The tokens are eventually credited to the user’s/investors account.
Bitforex exchange launched a new IEO service platform "Turbo optimization." BitForex Turbo will offer high-quality projects by curating blockchain projects with strong values, innovative or pivotal tech, and high potential. The service can provide confidence to investors because they can identify strong potential projects in an over-saturated market.
Unification (UND) will be the first project through the initiative. UND is a cross-chain platform that wants to enhance data standardization and interoperability between enterprise technology stacks.
Bittrex International IEO
Bittrex intended to hold the first Initial Exchange Offering (IEO) starting on March 15, 2019 on behalf of a blockchain project called RAID where it would sell XRD tokens for the blockchain-powered gaming data startup from South Korea.
The startup wanted to raise funds by selling 17 billion XRD tokens and the Bittrex offered 1 XRD at the cost of 10 Satoshi with the minimum purchase being set at $10 and a maximum of $20,000. However, the sale was canceled at the last minute.
However, the exchange launched IEO for the VeriBlock (VBK) on April 2nd at 9am PDT and the IEO ended within 10 seconds of starting. During the IEO, roughly 70 million tokens were sold for $0.10 each, to 855 purchasers/investors. However, the IEO was criticized because of the short time it took to conclude, with a number of people being locked out.
Trading went live for the tokens on the exchange two days after the conclusion of the IEO. By the second day, Veriblock is the third most traded coin on Bittrex, with just under 1,500 BTC ($7.5m) in trading volume. However, the price has gone down to around $0.066722.
VeriBlock blockchain uses a novel Proof-of-Proof (“PoP”) consensus protocol and is the first technology to allow any blockchain to inherit Bitcoin’s unprecedented thermodynamic Proof-of-Work security in an entirely Decentralized, Trustless, Transparent, and Permissionless (“DTTP”) manner.
Away from VeriBlock, Bittrex uses a certain criteria to select projects for IEOs.
BGOGO Apollo is operated by BIGOGO, the first digital asset exchange with supernode listing authority. The exchange has held IEOs for projects such as ARM and X-Block. The cryptocurrency exchange uses transaction mining where people receive rebates based on their token holdings and the amount of trades they conduct on the exchange.
BGOGO has announced a number of projects for their Apollo. First, they controversially announced ON April 12 allocations of Algorand token, ALGO for the IEO but Algorand Network said they token sale was not authorized by them. They then canceled the IEO.
Two days ago, the exchange announced Facepower Asset Chain (FAC) as their second IEO project, whose sale will take place until 16 April and Staking Computing platform to take place on April 23.
BitMax Launchpad’s first IEO project is called DOS Network, which hasn’t fared well to sustain price after listing. The IEO for the project started on March 10 this year. The project aims to improve blockchain usability with the help of real-world data and computation power.
Bitmax is aiming for a launchpad IEO (Initial Exchange Offering) of 1 per week.
Bittrex International first announced the first IEO on February 2019 for the RAID project but later canceled the project. RAID is a gaming platform where gamers would be compensated/rewarded with tokens for sharing data that helps gaming companies to improve and develop business.
VeriBlock IEO project was held on the platform and concluded on April 2.
BW Launchpad is operated by BW.com, a core strategic partner of ZB.com exchange which operates ZBG Launchpad. It has already completed three IEO projects as of end of March this year; Blockbuster, Grabity and V Systems.
The launchpad was announced on March 9, 2019 and it was said that 40 project worldwide (from United States/South Korea/Russia/Japan) had submitted applications.
To list, a project is audited by a team that includes BW.com Lab to ensure that the project which is listed is a high quality project. A team formed by BW.com Labs and more than 100 foundations, well-known institutions and investors to form an audit team, does the auditing.
For more details on the rules of application as an IEO, visit this link.
Cobinhood provides ICO services for projects as a turnkey solution including business model consulting, smart contract code review, legal compliance, deployment procedures and marketing support. Cobinhood is extending those services for IEOs.
In February, Cobinhood partnered with blockchain-based eSports ecosystem startup J Token to underwrite and advise the launch the company's IEO.
Coinbene started plans for their IEO in 2018 but officially announced their first IEO project last month.
Coinbene partnered with Netfel to launch an IEO for Tobigca coins (tokens used in the Tobigca game platform) from Jan. 9 and ToC was listed on CoinBene on March 7, 2019.
Coineal Launchpad which is run by Coineal exchange which manages $700 million daily trading volume and has completed IEOs for IPW Token, Levolution (LEVL), Kizuna Global Token (KGT) which is an hybrid of both security token and utility token, TOOL, GTEX, GOB, and Rebglo Token.
Some of the upcoming IEO projects on the exchange include REB which started on 6th this month and will end tomorrow; a generation gaming platform and games marketplace GTEX, which will happen on April 15; RFOX which starts on 17 April; and global payment and money transfer platform XCOIN which ends on 18th April. IZI (IZIChain) will also take place on Coineal Launchpad from April 20 to April 25.
Like any other exchange that hosts IEOs, Coineal lists projects alongside the details to let investors willing to buy tokens to understand the project better. Like any other exchange hosting IEOs, Coineal will list projects immediately after conclusion of the sale.
Exmarkets Launchpad is run by a crypto exchange known as thick order books and deep liquidity thanks to a backend framework. It currently has completed 4 IEOs. Some of the currently listed IEOs include DIO after the conclusion of the sale on 11th April. Listing was immediate. Dio is the native currency of Decimated, a blockchain-based post-apocalyptic survival game with true digital scarcity and item ownership. The game is powered by Unreal Engine and is building 64 square kilometers of persistent Online World to act as the battleground for thousands of online players.
Other upcoming IEOs on the platform include Airsave Travel, Windhan Energy, TerraGreen, Menapay, and Aerum.
Exmo exchange announced the launch of the new service on March 7. It considers four main factors for selecting the projects for IEO including how interesting and promising the ideas are by evaluating them in terms of the work done, point of view of the community, team and professional history, and the project’s market value based on whether it is really necessary and valuable for the crypto market.
Paytomat was the first Eastern Europe’s IEO to be launched on the EXMO Exchange. Paytomat said it choose the platform because it has a strong team, collaborative long-term plans, and authority among the community. Exmo was interested in the project because it had a set of working products, an established infrastructure and a clear vision of what the project would offer to the market (from tokenomics to technology stack). It was then listed for trading on the exchange.
During the IEO, Paytomat received support from public cryptocurrency communities including Cryptobazar, Cryptoart, Cryptonet, Problockchain, 10 dollars of buffet and others.
Huobi Prime is Huobi’s IEO platform which is not very old but managed the first IEO for the decentralized cloud communication platform called TOP Network, last month. 1,500,000,000 Top Network tokens Top were sold in three price limit rounds each lasting for 20 minutes but the hardcap was achieved within seconds of the IEO sale with each round lasting about 6 seconds on average. The first round price was $0.00177, second $0.00213 and third $0.00255. A total of 130,000 global customers participated in the event but 3,764 people successfully bought TOP during the sale.
However, a number of concerns were raised regarding the platform’s capability to handle huge demand just as it was with Binance Launchpad.
Top token was almost immediately listed for conventional trading on the Huobi Global against Huobi Token HT. Soon after listing, the price capped at around $0,0065, which was roughly around 250% increase from the price of the token during the first sale round. The token is currently selling at $0,0199.
Huobi Prime announced this week that they will be holding the second IEO launch on the 16th of April but with some changes to the way they do their thing. Regarding the changes, a user will need to have average daily holding of 500HT minimum in their account to participate in any IEO sale. That means you may need to buy and/or hold tokens to achieve a daily average until the day of the IEO sale. You can use a tool on their website to calculate how many HT tokens you need so far in order to participate in the upcoming IEO.
The second change for those participating in the IEO is that in addition to the trading limits now implemented, a user will be allowed to trade at a personal trading cap based on his or her average daily holding of HT. That means you buy more tokens the more average daily tokens you hold or have. The caps will be announced as the launch date approaches.
The third change regarding IEO sales is that there will be shorter trading rounds. There will be three trading rounds lasting 5 minutes each and with intervals of 5 minutes between them. Each of the rounds will offer token allocations increasing from the first round to third round and discounts reducing downwards from first to third round. The first round will have 20% of token allocation maximum and third one 30%.
There will be a third special round where the rest (50%) of token allocation will be sold. This round will see every user eligible to participate in the sale getting their hands on some tokens. A formula based total order amount and personal caps will ensure this. Each user can place can place a limit buy order for the amount left in their personal cap and the calculated total order amount is multiplied with the Prime token allocation x 50%.
Huobi Prime has also launched a video contest to popularize these changes.
That said, Huobi Prime will host the second IEO sale for Newton Project, which uses public chain called New Chain ((mainnet launched in December 18, 2018) and Hyper Exchange Protocol and which aims to upgrade corporate economy to be a community-based economy benefiting everyone who participates, from e-commerce entrepreneurs to other industry elites
IDAX Foundation is a global digital financial service platform that serves Bitcoin traders with high daily trading volumes. The exchange’s first IEO project is ZeroBank project.
Some of the upcoming projects on the IEO platform include AlienCloud.
KuCoin Spotlight was announced on March 11 by Michael Gan the KuCoin CEO who said that the platform would be “a launch platform for hidden gems in blockchain that have real potential and value.”
Latoken Launchpad started in 2018 and has promoted a number of projects on their platform. For instance, UTEMIS project was launched on the Launchpad in October last month after which is was listed for trading.
On February, the exchange held an IEO for Tokenmom DEX exchange at February 4 and late last month held IEO for 7Eleven blockchain-based technology payment platform on which customers can also buy and sell products.
OKEx OK Jumpsmart
Being one of the largest crypto exchanges by trade volume and based out of Malta, OKEx launched an IEO platform called OK Jumpsmart as announced on March this year by CEO Jay Hao. The platform lets token issuers to sell tokens directly to OKEx users.
Hao said the platform would support high-quality projects and early entrepreneurs that will contribute to the development of the blockchain industry. He said the OKEx had considered and practiced the mode early in July last year. According to him, the fund raising model not only saves money and energy for high quality projects and early entrepreneurs who can focus more on project development and community operations.
Jumpstart held the first token sale IEO on 10 April this year for Blockcloud, a blockchain-based internet to improve the current internet. The token sale took just one second to complete despite being planned to take 30 minutes. The token was priced at USD 0.005 or 0.0025 OKB per token and was over-subscribed.
Some users complained of the short sale period with one user wondering if it took him three seconds to read OKEx’s tweet, it would take him more to contribute to the IEO, arguing that the contribution button was never turned active. But a screen shot taken shortly after listing on the OKEx exchange revealed large blocks of demand around 0.04 OKB per BLOC or a surge of 1600% from token IEO price.
To participate, users had to hold 500 OKB daily (with 2,500 OKB for maximum contribution) for seven days to subscribe to the IEO sale. After the sale, BLOC/OKB spot trading market opened on the OKEx exchange on April 11.
Blockcloud attracted investment from more than 100 well-known investment institutions from up to 28 countries and regions in July, 2018. Its team members are from top universities including Princeton, Tsinghua and Peking University, among which, over 50% members own Ph.D degree. It also includes Oliver Hart, the Nobel Prize winner, and Hoan Soo Lee, the Economist of Council of Economic Adviser (CEA) during the first term of Obama government, as the economic adviser and project consultant.
Probit Launchpad is run by Probit, one of the major cryptocurrency exchange and has completed IEO projects such as Spin Protocol, CharS, Wegen, Steemhunt, REDI, Cherry Cube, while sale for Nuvo Cash is ongoing and will be held until 13th of next month and that of Mebrana project will be held on 15th and 16th of this month.
ZBG Launchpad by ZB.com, which started as a cryptocurrency exchange in 2018 and quickly reached top ten on CoinMarketCap although there has been accusations against them regarding faking trading volumes.
ZBG Launchpad started planning the first batch of the ZBG LaunchPad projects after creation of the Singapore Rocket Program. The exchange considers a number of factors in selecting participating exchanges, which factors include efficiency, landing application level, and community activity which the exchange will investigate before listing the project for IEO.
Participation in IEOs on the exchange is limited to users who complete real-name certification of the compliant country in its official website. The launchpad provides innovative, fast and compliant integrated currency service.