An example of the enormous returns that investors can get their hands on is via Digital Currency Initial Exchange Offerings.
Chris Long recently made about 200% gains from the coin listing on the exchange.
The Buy Transaction.
The Sale Transaction.
What are Initial Exchange Offerings?
Contrary to Initial Coin Offerings (ICOs), an IEO is administered by a crypto exchange on behalf of the startup that seeks to raise funds with its newly issued tokens.
Developers produce the project’s tokens and send them to the exchange. The exchange then acts as the middle man, selling the tokens to individual contributors for Ether/bitcoin.
Depending on the agreement between the developers and the exchange, some of the conditions traditionally found in Initial Coin offerings can be found also in an IEO, such as;
- capping the contribution per individual (so no one individual can gain maximum control just like shares in a public company)
- having a fixed price per token (just like an IPO).
From the perspective of a contributor, instead of sending the chosen participating currency to a Smart Contract governing the ICO, each IEO participant has to create an account with the exchange and send the chosen currency of participation to this account.
When the IEO commences, the participant can purchase the token directly from the exchange.
Why do an IEO over an Initial Coin Offering?
Given that there have been so many ICOs, why should a team seek to conduct their fund raising differently? There are several advantages afforded by conducting an IEO, including:
- Tapping on the existing user base of the exchange to obtain contributions for the IEO.
- Preventing a “Gas War” between sale participants, assuming the exchange is not decentralised (till date there have been no IEOs conducted on decentralised exchanges).
- Making it significantly more difficult to scam contributors who know that they can only purchase the token from the exchange.
- Functioning as a vote of confidence from the exchange and sponsor, which has to conduct its own due diligence on the developer’s project.
- Listing on the exchange where the IEO has been carried out is a natural next step.
How can you participate in an IEO?
Generally, the steps to participate in an IEO begin with checking if the project you are intending to crowdfund is indeed conducting an IEO. After which, you should:
- Find out which exchanges are hosting the IEO. There can be more than one participating exchange.
- Sign up for an account on the exchange by passing their whitelisting and Know Your Customer (KYC) procedures.
- Check what cryptocurrencies will be accepted during the IEO and fund your account appropriately.
- Wait for the start of the IEO to purchase your tokens!
How does the exchange benefit?
Running an exchange has been a profitable endeavour from trading fees alone, but incumbents are faced with increasing competition for users and their trade flows. The following are some of the benefits accrued to an exchange which facilitates IEOs:
- IEO or listing fees. This can vary quite significantly between exchanges.
- Influx of new users and their deposits. Some of these new users may eventually become loyal users of the exchange. I expect several exchanges to attempt carving out a niche by running IEOs.
- Joint marketing with the IEO team.
Finding such coins before they get listed are one of the many things that Christopher Long teaches in his Cryptocurrency Masterclass. Among others, the scrutiny and list of items to check will be discussed here. You may register for a ticket directly here.
Behavioural Psychology fanatic. I like good food, movies, intelligent conversations and logical reasoning. I also dabble with options, factor-based investing, and data analytics.