You know what I’m tired of hearing? That ICOs are dead. The fact is, ICOs are not dead; they are evolving. Just like the crypto world keeps evolving each day, so does the model of crowdsourcing.
Want to know a secret? There is a new invention in the crypto-world; Initial Exchange Offering (IEO). Similar to ICOs, IEOs will be used to raise capital for startups by creating and issuing tokens to investors. Only that in this method of fundraising, developers sell the new tokens directly to the crypto-market, via an exchange platform.
The future of start-up funding
When a company creates a token, they send it to a suitable exchange, which will list them for public investments. As a result, the crypto-exchange acts as a counter-party to start-up financing. The company enters into an agreement with the exchange, over the pricing and conditions governing the sale of the tokens. But wait, there is more.
The exchange has to conduct feasibility and viability screening of the companies before deciding to list their tokens. Once satisfied with everything, the exchange can charge the developers a given fee, and ensure compliance with pre-established procedures before listing. And do you know what this solves? The problem faced by Initial Coin Offerings: fraud.
How invested are exchanges in IEOs?
Crypto-exchanges can earn a given percentage of the proceeds of the tokens sold. Also, the sale of tokens attracts new users to these exchanges, who have to sign up, and may decide to utilize the exchange’s other services. In addition, the exchange also receives a listing fee from developers. Depending on the agreement with the developers, the exchange can also gain exclusive rights to a token. So, if a token is successful, the exchange gains new revenue streams and increased popularity within the crypto-world.
Think about this for a moment. Since the exchanges are heavily invested in the listing of a token, don’t you think that they would do more on due diligence to ensure that they only list credible tokens?
Should you care about IEOs?
Whether this new funding model is here to stay, only time can tell. As it stands, more users continue to embrace the models as well as exchange platforms. So, what does this mean for casual crypto-investors? Is it time to throw caution to the wind? No, investing, as always, need you to weigh in all the factors. Not all IEO tokens will turn out to be a success.
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