Investing In Initial exchange Offerings (IEOs)

By Michael M

This article is taken from the April’s 21CRYPTOS Magazine

My third experience with ICO investing was one of those things that should have kept me away from approaching another ICO again.

I was at my friend’s house, a software developer in Spain I’d met at a cryptocurrency conference. We sat as his desk waiting with one hand on the computer, the other hand on our hardware wallet, ready to pull the trigger as fast as we could.

The Wild West of ICO investing

I thought I’ve already experienced the wild side of the crypto trade, but the Wild West of investing no longer seemed like a figure of speech. We learned after the second experience how fast the good ICOs sold out. Some of them within seconds. A few minutes if lucky.

We didn’t want to miss another. As soon as the contributions to send ETH opened, we were shown a public address that did not reflect the address it was supposed to. We knew something was wrong and fortunately we didn’t lose money that day, but many others did. Unfortunately, it was far from the worst experience.

The abundance of scams and the incredibly inefficient process of ICOs has led to the IEO. An IEO is similar to an ICO in terms of being a new cryptocurrency offering. The key difference is now an exchange (like Binance or Huobi) and a new project work together in a partnership capacity.

The tokens are first distributed and launched on the exchange, then sold off to buyers like a traditionally traded cryptocurrency.

Exchanges take responsibility on vetting IEOs

With the advent of the IEO, exchanges do the vetting and essentially take responsibility early on, since they’re now representing and hosting the new token. This reduces the probability of scams significantly, while also improving the security and long term sustainability of new token offerings.

With diminishing demand from ICO speculators, IEOs seem to be a good strategy for strong cryptocurrency projects. It’s a win-win for all parties involved. Exchanges benefit from more transaction fees and new products to engage their users with. By marketing new tokens in the form of an IEO, it may attract new users to the exchange.

IEOs reward exchanges and projects alike

There is a mutually rewarding marketing proposition for the exchange and the projects. Marketing budgets won’t have to be as substantial since the exchange manages the selling of the tokens in the early stage. Once a project launches on an exchange, they should have ample liquidity if they launch on a relatively good one.

Most importantly, for investors supporting these new projects, the counterparty risk is drastically reduced, akin to buying any other established cryptocurrency on an exchange. Hopefully this doesn’t induce any complacency on the investors side, but it should put bad actors in check while helping developers focus more on their projects.

This article is taken from the April’s 21CRYPTOS Magazine – read the full 100 page monthly magazine HERE.