After the horror show that the Crypto winter was for ICOs, a new trend was quickly gaining traction in the crypto space.
In the hey-days of ICOs viz late-2017 to mid-2018, there were fewer than a dozen Initial Exchange Offering projects. Now, with the decline in ICO interest, the IEO has taken 2019 by storm with over 100 IEOs launched.
In just May 2019, the funds raised by IEO projects for the year crossed the $1 billion mark. The total funds raised by IEO projects globally, since inception, stands at over $1.6 billion dollars with an overwhelming majority of these funds, ~1.4 billion being raised in 2019 (source).
The ICO model vs the IEO model vs VC funding
IEOs are similar to ICOs in the sense that they are both tokenized forms of crowdfunding. They offer tokens, in exchange investment, that have some functional/utility value for a service that the company would provide at a later date.
That this appeals to global investors was proven beyond doubt with the roaring success of the ICO — this was primarily facilitated by the very low barrier to enter investing in the project.
The key contrast between ICOs and IEOs is simple — in an IEO, a cryptocurrency exchange facilitates the token offering on its platform and subsequently lists it, while in an ICO, the project management team usually has to take care of this by building a website, setting up a payment gateway, etc.
Put mildly, this ensures ease of purchase of tokens and given that they’re normally bought with the exchange’s own native token, this makes it a lot easier for the average retail investor.
A major factor responsible for the growth spurt of the ICO model was the fact that it enabled easy access to a global investor pool which is in stark contrast to traditional venture funding.
With the roll-on addition of an exchange-based launchpad to the ICO model — the IEO makes it ludicrously easy to invest in a project.
Further, the subsequent liquidity created by the exchange offers investors an exit from the project which is a major advantage to the ICO model where a large number of ICOs never listed on an exchange leaving investors with worthless tokens and no place to trade them.
Ponder this: ICOs have raised ~$1.1 billion so far into 2019, so for the first time, funds raised by IEO projects have crossed funds raised by ICO projects (source)!
Funds Raised by IEOs during 2019
*Total funds raised includes $1 billion raised by Bitfinex. Not represented in the graph
With such large sums of money being raised by IEO projects, the question remains, what’s the regulatory framework going to say and critically, will this continue?