Initial Coin Offering VS Initial Exchange Offering – What’s the Difference?
Initial coin offerings (ICOs) took the crypto world by storm back in 2017 as a means for cryptocurrency and blockchain-based projects to raise money. Since then, other means of fundraising for cryptocurrency projects have launched. One of these fundraising options is initial exchange offering (IEO) which acts similarly to an ICO but with a few key differences.
Before getting into the differences between the two, it’s important to define the initial coin offering and the initial coin offering.
What is an initial coin offering?
An ICO is a way for project founders to raise funds to launch or maintain their cryptocurrency project. It’s a way in which entrepreneurs in the blockchain space can raise money by publically selling their project’s tokens (or coins) in exchange for Bitcoin or Ethereum.
The idea behind an ICO is similar to an initial public offering, where the founder sells the project’s coins to the public before or during the launch or update of the project. Investors buy coins for the project with the hopes that the project will succeed and the coins will become more valuable in time. As an investment, investors are opting for choosing a longer-term trade.
An initial coin offering only needs to have a whitepaper for the founder to raise funds. This means that there are very few regulations and legalities behind the fundraising concept. It also means that the project founder does not need to provide any evaluation or track record. In order for an ICO to succeed in raising funds, there needs to be a major level of trust that investors have in the founder’s ability to run the project.
What is an initial exchange offering?
An initial exchange offering is a crowd sale but overseen by a cryptocurrency exchange. An IEO is backed and run but the exchange which allows investors to receive tokens generally exclusive through the exchange.
How is an ICO and an IEO similar?
The two methods of fundraising are similar in that they both offer investors the option of buying tokens as part of a crowd sale. Both rely on investors buying coins for the project in order to raise money and therefore requires that there is trust in the future possibility of the project’s success.
What is the difference between an ICO and an IEO?
The main difference between an ICO and an IEO is that an IEO is overseen by a cryptocurrency exchange. With the backing of a platform, investors can rely on the credibility of the exchange to back up the trust they might be putting in the project. The exchange also acts as a platform for fundraising, which means that the process is far more convenient for the investor as there is no need for smart contracts or double-check transaction addresses.
The implication behind a project backed by the exchange, in theory, is that there is a layer of legitimacy which an ICO can’t boast. This is because the exchange essentially puts its name behind the project giving the founder a certain form of credibility. While the space is still unregulated apart from the exchange’s requirements, there is less risk of fraudulent projects and scams in an IEO in comparison to an ICO.
An IEO is also different from an ICOs because the tokens are minted before the crowd sale is launched. In an ICO, the tokens can be minted afterwards. In an IEO, investors will receive their cryptocurrency tokens beforehand which makes the process slightly more secure and adds a layer of certainty to the project.
If you are looking to invest in an ICO or an IEO, make sure you do your own research. Conducting a background of the founder, exchange and project idea wouldn’t go amiss in order to protect against any possibility of scams.