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What is an IEO?

Photo by Markus Winkler on Unsplash

You may have heard about Initial Public Offering (IPO), or even are familiar with it.

What does an IPO do?

An IPO process occurs when a privately held company goes public and sells its shares to the general public. It is when a company decides to be listed on an exchange.

Well, an IEO works similarly.

IEO – Initial Exchange Offering

An IEO is a one-of-a-kind fundraising method for cryptocurrencies. IEOs are launched by crypto companies to raise capital as funding for their business by selling their cryptocurrency.

Like all investors would, IEO investors typically would do a thorough research before deciding if an IEO presents promising opportunities. These investors would then enter early in hopes of making a big profit in the future when the project becomes successful.

How does it work?

The IEO process is a relatively straightforward one. A company, or a project with a business idea that they feel strongly for, needs funding to realize it – that’s when they create a token. This token is exclusive and tied to its company, and it would get listed on an exchange at a set price. – This is when the company starts to pitch their business idea to potential investors. The IEO investors are believers of the business idea, thus will buy the tokens to fund the development of the project.

Example

XYZ Holdings would like to build an e-commerce web application powered by blockchain and need funding for its development. XYZ Holdings would then host an IEO, launch XYZ token, and sell it on a partner exchange, DWP Exchange. Investors would then buy these tokens (like a company stock) from DWP Exchange and hold it until the project’s further developments.

XYZ Holding’s e-commerce web application becomes highly successful a year later and is generating steady profit monthly. The investors would then receive a share of the profit as returns.

ICO vs IEO

Initial Coin Offering (ICO) were all the hype back in 2017, when investors were reaping in huge profits from ICO projects. However, the ICO trend quickly died down after an abundance of scam reports were reported everyday. As ICOs were self-hosted, the projects were prone to data-leakage, stolen funds, and unreasonable terms of investment – This is when crypto exchanges start offering IEOs, where projects get listed on the Exchange to raise funds.

The boon of an IEO is the safety of a project, as an Exchange would conduct due diligence before hosting an IEO. Despite limited investment options, investors are more assured on the quality of an IEO.

Taking Part in an IEO

As we should in conventional investments, IEO investors should conduct thorough research on a project before diving into it. There have been quality IEOs surfacing, like the one DigiFinex recently launched.

Hopefully this article gave you some insights on how an IEO works. You may want to get yourself started by reading Trading Vs Investing in the DigiFinex Academy.

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