IEO 101: A beginner’s guide to an exchange administered fundraising event
What is an IEO?
An initial exchange offering (IEO) can simply be defined as a sale of tokens conducted via an established mode of exchanging cryptocurrency. Arising from the loss of trust in initial coin offerings or ICOs, IEOs are done with the same objective but through a different conducting platform.
So, what is the difference between ICO and IEO? Briefly put, ICOs are organized through a holding company’s own platform, while IEOs are done by cryptocurrency exchanges on behalf of a company that is raising funds via token sales.
Entrepreneurs and startups have come forward to prefer launching IEOs for crypto fundraising amid the numerous cases of fraud involving ICOs over the past few years. This led to the ICO industry losing confidence and trust among investors, pushing new companies to avoid using ICOs for fundraising.
Aside from IEO, there are other alternatives that have been proven effective. So, it’s not really just IEO vs. ICO. Some of these are security token offering (STO), initial token offering (ITO) and initial DEX offering (IDO).
We’ll discuss them briefly later as well, but for now, we’ll focus on IEO, which has proven to be the best option for blockchain fundraising. For one, a lot of investors trust IEO platforms more because of the level of due diligence associated with IEO compared to ICO. Binance Launchpad, for example, is a trading platform that has helped a lot of blockchain projects raise capital.
How does a crypto IEO work?
First, a verification process is in place to avoid scams, as were rampant with ICOs. Exchange platforms first perform a series of checks before the commencement of a sale to ensure that the new digital currency in question is really what it claims to be. After all, the crypto exchange’s name is on the line if it launches an unverified IEO.
A white paper is also required. Similar to an academic paper, the white paper serves to inform and educate potential investors concerning the project. This includes detailing the technical aspects of the product, its architecture and the problem it hopes to solve. Other things to include are tokenomics, the team’s vision for the project and the reasons why investors and developers should be interested in it.
An IEO platform will scrutinize the white paper, as well as other factors before a blockchain project is given the go-ahead.
Some of the other factors that a cryptocurrency exchange might look at are:
Background of the team behind the project
Examining the technology behind it
The currency’s unique claims or selling points
The tokenomics and demand for it in crypto
Once the cryptocurrency exchange has decided to go ahead with the IEO project, investors are asked to follow Know Your Customer (KYC) and Anti-Money Laundering (AML) measures. Investors and contributors are also provided full transparency concerning the progress of the project.
Launching an IEO
Perhaps you want to know how to participate in an IEO. The main thing that you and your team will have to focus on at the beginning is creating and strengthening your project to attract a lot of investors. One of the benefits of IEOs is that the exchange itself manages the rest.
The good thing about selling your new digital currency via a third-party exchange platform is that you can leverage investors’ trust in an already established platform. You can also gain access to potential investors and users with the help of the right exchange platform.
Here’s what you need to consider to help you get started on your IEO crypto project:
Analyzing your idea and market scenario
Before launching an initial exchange offering, you should first ensure that your project is feasible by analyzing it and looking at the current market scenario. Knowing what the market needs is absolutely crucial to ensure that your currency will address a gap in the market.
Study the market beforehand and understand potential competitors’ weaknesses. This way, you can leverage current problems and address them through your project. Pay attention to marketing, too.
How do you plan to market your token to investors? As early as the planning stage, you have to think about how you can present your currency to potential investors in an appealing way. After all, your goal is to get investors to place their capital in purchasing your token.
It’s necessary to back everything with facts and solid research from the beginning. This will help your project come across as legitimate to prospective exchange platforms, investors and users.
Getting your MVP ready
Established cryptocurrency exchanges will only list projects that have already made a significant amount of progress. Hence, when you launch on a crypto exchange platform, it’s crucial to ensure that you already have your minimum viable product (MVP) ready or at least that the development is underway.
This is a requirement for your project to get listed on top exchange platforms. Take crypto wallet provider Bread (BRD), for example. Prior to its IEO launch, it already had a functional app with a hundred million users.
Choosing an exchange platform
Now that you have a robust idea and some development underway (or an MVP even), it’s time for the next big step. You now have to choose an exchange platform. This is crucial because the platform you choose will set the pace of the competition and shape the future of the IEO trend.
Therefore, the practices in place concerning the selection, due diligence and connecting with investors must be the right fit for the kind of project you have in mind. You have to select a secure and reliable platform, as the platform will be in complete control of its users’ private keys. Some of the top exchange platforms in the industry are:
Binance Launchpad: Recognized as the world’s largest exchange by trading volume, Binance is one of the most-trusted exchange platforms. Binance supports all devices in multiple languages and boasts seamless UI, superior technology and great partnerships.
OKEx Jumpstart: Also considered one of the leading exchanges by trading volume, OKEx Jumpstart has a unique subscription and allotment approach. This ensures that token sales are carried out openly and fairly. Subscription opens for only 30 minutes and closes as soon as the limit is reached, after which allotment will follow.
Bittrex: Bittrex is one of the exchange platforms that quickly jumped into the IEO trend back in 2014. Although its first attempt, RAID, was stopped due to controversies surrounding RAID’s business status, Bittrex was able to come back strong. Bittrex launched VeriBlock in 2019 and sold out in only 10.4 seconds.
Huobi Prime: One of the first exchange platforms to follow Binance’s footsteps of successfully performing IEO, Huobi set a new record with the TOP Network project. Although this caused a stir in the industry alongside fraud allegations, Huobi remains a formidable platform that now positions its launchpad as a direct premium offering (DPO) platform.
KuCoin Spotlight: KuCoin is also famous in the industry for having sold out the MultiVac project in just seven seconds when it was launched in 2019, attracting multiple users worldwide. KuCoin used to operate on a “first-come, first-serve” basis with IEO projects but has since announced its plans to use a lottery model.
Drafting a white paper
Drafting a well-researched, well-written white paper is the next big step in launching a successful IEO. As previously mentioned, a white paper will aid investors in understanding and appreciating your project, helping them get on board. Much like an academic paper that also acts as a selling proposal or pitch, a white paper should be comprehensive, factual and formally written.
Simply put, a white paper is a well-documented account of everything your investors should know about the project. Here are some helpful tips for writing a white paper:
Break down your content into smaller, more readable sections: While a white paper is meant to be informative, it also helps to keep it engaging so that potential investors will stay hooked and read through to the end.
Highlight how potential investors can benefit from the project: Remember that your goal is to help investors see the potential of your project. While you and your team are sure of its success, theoretically, your potential investors don’t know this yet. Therefore, it is important to articulate this aspect well. Since your target audience is crypto investors, make sure to mention the token sales summary sheet as well.
Define the current market situation and point out problems or gaps that your project seeks to solve: This is crucial in helping investors and exchange platforms see your vision and justify why they need to support your project. Make use of flowcharts and diagrams to support claims and illustrate the processes to make your points clearer. Some good tools to use for diagrams and technical architecture are OmniGraffle and Lucidchart.
Establish your team’s experience and credibility: Introducing your team’s credentials and work experience is a crucial part of your white paper. It will instill confidence in investors about you and your project. Having a strong experienced team is one of the things investors look at when supporting a project. So, make sure to detail previous related achievements that can support your credibility.
Designing and developing your website
Having a website will help you provide accessible information to potential investors and contributors. As such, you should make sure that your website is the best representation of your project online. Make sure it is well-designed, has a great user interface and user experience (UI/UX), loads fast and is secure.
Consider your website as the digital and more digestible version of your white paper. Make it engaging while remaining detailed, and keep people updated on your development progress. Hire a professional web designer, if you must, to have an impressive site that investors will love to browse. Also, ensure to highlight the selling points of your project and how they can benefit your investors.
Token development is where you will be creating tokens to list on exchange platforms for investors. Before token development, decide on how many tokens you will be issuing and a system for determining its value.
Tokens are created via various blockchain platforms such as NEO, Ethereum, EOS and others. Ethereum is a popular choice, but you can choose to create your token using other blockchain platforms.
Having a clear funding goal
Decide on a funding goal with regard to the number of tokens that will enter the IEO sale. Remember that preparation is key when it comes to your funding goal, as it will help you mitigate risks and avoid failure.
Prior to listing tokens on your exchange platform of choice, you should already have determined your maximum funding requirement. Determine a hard cap for funding or the maximum amount of funds that your project can raise. This is to assure investors that you have a practical and tangible goal and are not just in it to raise as much money as you can.
Artur Boytsov Vice president of Priority Token Artur Boytsov recommends a $6-$7 million figure as the ideal hard cap for IEO funding.
Listing the token on the exchange
After the tokens are minted, they are now ready to be listed on exchange platforms. Exchange platforms each have their own rules for allowing the listing of tokens, so ensure that you comply with all requirements and pass the criteria for selection.
Once the platform has completed due diligence checks and other procedures, your tokens can now be successfully listed on the exchange, and sales can commence.
This is a crucial but often overlooked step. Once your tokens are listed, you can market your project further to reach more investors and gain further traction. Maximize tried-and-tested marketing strategies to make sure your project is promoted.
Utilize social media
Nearly everyone is on social media, especially crypto-savvy investors. Ensure you have a strong social media presence on Reddit, LinkedIn, Facebook and Twitter. Use these platforms to post regular updates, crucial information and other details that will be interesting to potential investors. Stay active on them as well, and make sure to answer questions promptly.
Distribute press releases
Post-IEO, it’s crucial to garner as much media attention and support for your project as you can. Write press releases about your project and submit them to various tech websites and media outlets, making sure to highlight your project’s selling points.
Blogging and SEO
You’re the foremost expert on your project, so try to come up with articles about it. Enlist the help of a professional writer to make your blogs more engaging and search-engine optimized. This will ensure that your blogs attract more traffic and gain attention from your target audience.
Discussing on forums
Forums are important in the crypto space, so make sure to utilize them to discuss your project with other people. This will help you gain organic community support, which will be good for your project.
Advantages of IEO
Investors have more confidence when token sales are carried out through a trusted cryptocurrency exchange platform. This also gives the project more legitimacy and credibility, attracting further investments down the road.
Since IEOs are conducted through third-party exchanges, they are likely to run smoothly. Exchange platforms hold the responsibility of overseeing transactions and can also offer development and marketing support.
IEO platforms offer investors a better user experience compared to ICOs.
There is a lower risk of fraud, as IEOs are regulated according to the exchange’s set rules.
IEOs are open only to existing members of the exchange platform and not to the public.
Disadvantages of IEO
Not all cryptocurrency exchange platforms are created equal. Some may not be as strict in doing due diligence or implementing regulations, so make sure you do your research before selecting an exchange platform.
Listing fees may be quite high, especially on reputable exchange platforms. Startups may also be asked to give the exchange a commission from token sales.
Crypto pump and dump scams are still a risk with IEO. These scams are carried out by scammers who create fake hype around a cryptocurrency to create interest and drive prices so that they can sell all their shares soon after.
Other ways of exchange administered fundraising
Initial coin offerings are an older crowdfunding model followed by blockchain projects for raising capital and creating a new cryptocurrency. ICOs are unregulated, running the risk of ICO tokens getting in trouble for non-compliance with federal securities laws.
Security token offerings are when investors are issued a cryptocurrency token or coin. Such securities have a monetary value and can be traded on STO crypto exchanges. These transactions are recorded on public blockchains.
Initial DEX offerings are another ICO alternative. An IDO is technically a token representing a certain asset hosted on a decentralized exchange (DEX). A project can launch a token through a decentralized liquidity exchange. It can be created for anything from crypto to cars and even music albums.
Tips for a successful fundraising event
Build a community: There’s a reason why a lot of startups rely on community. Even if your token gets listed on a large exchange platform like Binance, you’ll still be faced with a huge challenge. This is because most traders on these platforms are mostly trading large cryptocurrencies like Bitcoin (BTC), Ether (ETH) and Litecoin (LTC), among others. As such, it's important to get as much support from your community as you can. Try to get at least a hundred genuine supporters before fundraising and maximize public relations (PR), social media and other marketing channels.
Have a robust marketing plan: Focus on churning quality blogs, articles and PRs to support your project and create public interest. Consider tapping into the right channels and influencers that your target audiences (investors) are likely to connect with.
Diversify your audience: There’s a reason why leading exchange platforms support multiple languages. It’s important to diversify by not just focusing on English speakers but other communities as well. After all, it’s a wasted opportunity to keep other audiences untapped. Consider hiring community managers from areas that you wish to break into that will have a good grasp on what their community is looking for.
Consider a launchpad that supports private sales: This can be a game-changer. Having an exclusive investor base via your exchange platform can influence the success of your fundraising. In fact, you might find that private sales can become the major driver of your success, so it’s important to be wise in choosing your launchpad.