Cryptocurrencies are continuing to experience a growth in terms of popularity and reputability. Since Bitcoin was first launched 10 years ago thousands of other coins have followed suit, matching the increase in demand for cryptocurrencies. The last decade has also seen a dramatic increase in the applicability of cryptocurrencies, with more businesses allowing for transactions in coins and even Bitcoin ATMs entering the scene.
The method of raising funds for and launching a new currency is changing, alongside cryptocurrencies growing popularity around the world. Since its inception in 2013, the Initial Coin Offering (ICO) has been the main method of crowdfunding and launching a new cryptocurrency. However, this format has seen some setbacks in recent years.
The launch of Master Coin initiated a period that saw hundreds of ICOs in what quickly became a booming trend. With ICOs, startups typically sell a quantity of cryptocurrency as coins or tokens, which helps in the fundraising process outside of regulation. Unfortunately, given that the ICOs do typically fall outside of regulations, and offer little in the way of accountability, there are numerous instances of abuse and fraud. This has led to several countries, most notably China and South Korea, banning ICOs altogether.
The Initial Exchange Offering (IEO) is a new form of crowdfunding and launching a cryptocurrency. The IEO is based on the general concept of the ICO, but with several key differences aimed at increasing the reliability of offerings. You can see which IEOs have launched already and which are upcoming in this IEO list.
At its core, and IEO involves one or more ‘cryptocurrency exchanges’ which support startups in raising funds, marketing and launching their cryptocurrencies, processes that startups managed themselves in ICOs. This allows for exchanges to develop and offer both expertise and their reputation in the coin offering process, bringing more stability to the offering.
So what are the main differences between ICOs and IEOs? Read on to find out:
Who is the Counterparty?
With ICOs, the counterparty was generally the developer of the coin, quite often a startup, allowing a developer to quickly raise funds and launch a currency. IEOs are carried out by exchanges, which carry their own historical record and reputation. This brings a higher level of accountability to the offering since an exchange has a vested interest in ensuring that the offering is legitimate and carried out in a professional manner.
How are Funds Raised?
Before any IEO, the exchanges and developers must come to an agreement on the pricing of coins (fixed or variable) as well as the limit of the amount of coins on offer. Once this agreement is reached, the exchange or exchanges then conduct a feasibility review of the overall project in order to determine whether to proceed. ICOs, on the other hand, generally lacked this type of external review.
Who manages the launch processes?
In every cryptocurrency offering, there are several processes involved in the planning and execution of the offering. ICOs relied on the developer themselves to run the launch event planning, the marketing and the final contracts with customers. With IEOs, the exchange manages these processes. Since exchanges specialize in coin offerings, they are able to bring a higher level of expertise and professionalism to the offering.
Reputation and Confidence
Perhaps the most significant difference between ICOs and IEOs is the reputation and confidence involved in the launch. The numerous instances of abuse in ICOs has led to the need of a system with more reliability. ICOs made it easy for anyone to quickly raise funds for and launch a currency. The IEO relies on one or more exchanges, which bring their own experience and reputation to the project. This allows parties interested in the offering to have more confidence in the process.
While the IEO is certainly gaining in popularity, and seems to be attracting an ever-growing following, the future will show just how far this trend will go. This brief introduction of the differences between ICOs and IEOs will hopefully get you started in your efforts to better understand the processes involved in financing and launching a cryptocurrency. To learn more, be sure to check out the other posts on the topic on ieoexplorer.com