Are ICOs Dead, and Have IEOs Taken Their Place?
Are ICOs Dead, and Have IEOs Taken Their Place?
Throughout 2018, the inescapable news story was cryptocurrency’s fall from the previous year’s legendary heights. In a tumble that posted record low after record low, the crypto bear market pushed bitcoin to values that most retail investors and traders didn’t think would ever be seen again.
While BTC was busy painting red candles against weekly charts, major changes to the way cryptocurrency projects raise funds were getting underway.
A major driving force behind crypto’s meteoric rise in 2017 was the ICO – or, Initial Coin Offering. ICOs offered retail investors the opportunity to buy tokens for up-and-coming blockchain projects in a direct manner using nothing but smart contracts. In contrast, traditional venture capital fundraising is restricted to an elite and closed-off group of institutional and high-net-worth investors. If you’re hoping to get in on the next Snapchat IPO – think again.
Are ICOs Dead?
ICOs changed that dynamic to allow regular, everyday people to get in on tech startups at the ground floor. Because of that opportunity, the ICO market definitively exploded, propelling early projects to stellar valuations that often reached into the billions of dollars.
However, with every great rise comes an (at least) equally great fall. By the end of January 2018, South Korean regulators decided to cool the market off by declaring an end to ICOs in the country – a hotbed for crypto activity – and ending support for new crypto-bank account registrations. The South Korean ICO prohibition led to repercussions felt industry-wide, and by February 2018, the ICO market was in a tailspin along with the rest of the market.
By Q2 2018, the ICO market had gone quiet, and since then, it hasn’t recovered. After raising billions of dollars within a one and half-year timeframe, ICOs started failing to meet fundraising goals left and right.
As of today, most of the projects that came to prominence during the ICO bubble of yesteryear have seen their values plummet to fractions of what they once were. Most projects have lost at least 95% of value calculated from the height of the bubble in December 2017. To add insult to injury, by Q1 of 2019, ICOs had raised a record low amount of funds, and the vast majority of projects came nowhere near their hardcap requests.
Of course, the bear market isn’t the only reason ICOs went from hot to not. Pressure from regulators around the globe contributed largely to the decline in investor participation. With uncertainty swirling around the legality of ICOs, and nobody knowing for sure whether their investments would stand the test of time, ICOs signaled that they would likely go the way of the dodo.
It’s into this context that IEOs came to prominence. Regardless of where you look – IEOs are dominating the conversation.
However, since IEOs are so new, it’s understandable if you are unfamiliar with what they are and how they work. Let’s take a deeper look in the next section.
What are IEOs?
If you’ve been involved in the cryptocurrency market for any length of time, then you’re surely aware of how quickly the space moves, and how often blockchain technology evolves.
In just a few short months, the ICO has become seemingly obsolete as IEOs have taken their place. IEOs, short for Initial Exchange Offering, use exchanges as an intermediary platform to offer tokens to investors. Instead of going direct via smart contracts, exchanges like Binance, Bittrex, and Huobi host the token sale.
What are the advantages of placing an intermediary like a cryptocurrency exchange between users and the tokens they’re buying?
1. Investor protection – ICOs often left investors feeling as though they
had no one to turn to if things went wrong. Sadly enough, things have often
gone wrong with a number of ICOs pulling exit scams and other instances of
fraud resulting in millions of investor dollars lost forever. Having a
reputable exchange like Binance or Huobi run the IEO means that the exchange
has properly vetted the project and is essentially vouching for its legitimacy.
As an investor, that should bring you a great deal of comfort.
2. Immediate Exchange Listing – A big worry for many investors is whether or not
the token they’re buying will end up with a proper exchange listing. Sometimes,
investors wait for months or even years for a token they’ve bought at ICO to
hit a liquid exchange. IEO listings completely change that. Since an IEO
happens on an exchange, the moment the fundraising period is over, the token
gets listed and trading begins. So, there’s no more wondering about whether
that exchange listing will happen.
3. Exchange Reputation – Exchanges are putting their reputations on the
line by partnering with IEOs. Owing to that, they can’t afford to have an IEO
go wrong. That means that exchanges are willing to go to great lengths to
ensure that everyone is happy by the end of the fundraising period. A famous
crypto exchange like Bittrex will ensure that everything runs smoothly and that
if there are any problems, they’re solved lest someone make a public complaint.
Exchange run IEOs guarantee an amount of certainty for investors.
As you can see, there’s plenty of reasons behind the success of IEOs. They are fundamentally more secure than ICOs, have better exposure than STOs, and have the backing of brand name exchanges like Binance, Bittrex, Huobi, OKEX, and others. Because of those connections, investors feel safe to start investing in blockchain startups again.
After major scams like Bitconnect and QuadrigaCX, it’s no wonder that investors are looking for a modicum of security – especially in view of the ongoing bear market. IEOs have risen to prominence in no small part because of the impeccable confluence of several beneficial market conditions.
Will IEOs contribute toward the next bull run for bitcoin and cryptocurrencies in general? Considering the sheer amount of money pouring into startups again, and that the market is back on the rise, we’re confident that IEOs will play a part in the market’s rise from the ashes.