IEOs sense of safety
During the hype of ICOs, Initial Coin Offerings, quite a lot of people made a ton of money. Naturally, all hypes come to an end. The gains made with ICOs weren’t sustainable and at the end of the run, a lot of people lost enormous amounts of capital. However, that was not the death of “digital crowdfunding”. After the ICO hype lost steam, IEOs became increasingly popular.
An IEO, Initial Exchange Offering, is a fundraising event that is administered by an exchange, contrary to an ICO, where the project conducts the fundraising itself.
IEOs can create a sense of safety in contrast to ICOs. However, this is not based on fundamentals. With ICOs there are uncertainties whether the projects will get listed on exchanges. IEOs, on the other hand, are sold on the exchange itself, and will most of the time enable trading of the token or coin soon after the end of the IEO.
Another factor that attributes to the sense of safety is that big exchanges often do their own due diligence on the project that they want to list. More often than not, exchanges want to control certain aspects of a project to optimize the chance of the project and thus investment being a success. If the project does well, the volume surrounding the token or coin is expected to grow, which can translate into more transaction fees for the exchange.
Even with the aforementioned points, it does not always mean that IEOs are better or safer than ICOs. There are heaps more factors to consider before making an investment decision. Even when most exchanges doing IEOs are trustworthy, it can not be said for all the exchanges doing an IEO. Some create fake volume on their exchanges, for example, to make it seem as if a lot of traders are active there. This misleads projects into thinking that there is a lot of capital going around on the exchange which could be used for their raising of funds. The exchanges then ask for a listing fee upfront along with some tokens. A lot of projects have to deal with this problem at the moment.
Total IEO capital raised
ICObench keeps tracks of most if not all the ICOs and IEOs. The list of upcoming IEOs is currently over 200 names long and happing on at least 20 different exchanges. A whopping amount of $1.6 trillion has been raised via IEOs on these platforms as of this writing article. Below you’ll find three pie charts with the share of the total amount raised per exchange. The first chart shows all the funds raised, in the second chart the Bitfinex IEO platform raise is removed, and in the third chart the projects that raised through multiple exchanges are removed as well. The $1B from Bitfinex and the $138M from multiple exchanges are removed to give a better representation of funds raised. Bitfinex’s IEO was LEO, a trading platform run by Bitfinex self.
21% of the total capital raised via IEOs in 2019 has been through Binance as seen in chart 3, making it the largest exchange in this area. The first IEO done on the Binance launchpad was Gifto in 2017. The project raised $30M if just a few days. For one Ethereum you could buy 7000 Gifto tokens. Ethereum was priced at $684 at the time, so one Gifto token was around $0.10. Gifto’s all-time high after the IEO was $0.95. So if you would’ve held your tokens for around 6 months, you would’ve gotten a return of 850%. After the price surge came the price collapse, however. Gifto’s price is currently at $0.014. So if you didn’t sell your tokens, you would’ve nearly lost 90% in value.
After Gifto, Binance did one more IEO in 2017, Bread, which sold its token during the IEO for $0.78. The price went to $3.22 at its peak, translating into a return of almost 320%. Bread’s story is similar to that of Gifto as its token too declined significantly in price after reaching its peak. Those that held onto their investment since the IEO are currently experiencing a loss of 73%
ICOs and IEOs are not created equally. While IEOs can feel safer than ICOs, due diligence is still needed on exchanges and projects alike. Even if the project is fundamentally sound, the exchange might not be the best place for the token or coin to be listed on. And even though a respectable exchange conducts an IEO, it does not necessarily mean that the project is solid.