ICOs and IEOs
In the world of cryptocurrency, we have ICOs and IEOs . You have probably heard about them. So, what makes them so important and what do you need to know about ICOs and IEOs? Well, first, we will talk about what they.
Understanding IEOs and ICOs will help you know what to look for.
In the dot.com era, raising money for companies was a challenge that needed them to have an Initial Public Offering. There were no IEO and ICO. Fundraising for companies is a job that takes more than just having a product that works.
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In the IPOs, the companies go through a process where they offer shares of a private corporation to the public. This issue of stock would raise money and determine the valuation of a company.
For a company to thrive, they need people to invest and these days, companies can raise money using nothing but a whitepaper and a cryptocoin. IEOs and ICOs are a new way to raise money now.
These new ways are successful and they involve cryptocurrencies. It is important to learn about the specifics of Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs), to make sure you understand how they are used to raise money for companies.
Just like you would find cryptocurrency exchange reviews to help you know which one to use, you will need to know a lot about ICOs and IEOs before you know which ones to invest in.
How Initial Exchange Offering and Initial Coin Offering Work?
It is important to learn how IEO and ICO work and how you can make sure you invest in the right place at the right time to make sure you do not lose money. Smart contract platforms, like Ethereum and NEO, give developers the power to create dApps (decentralized apps) on them.
To get funding for a project, the developer has to issue a limited amount of the tokens during the IEOs and ICOs. They may be in the form of utility or security. They also have to be limited to make sure that a goal is present, for the fundraising to aim for. As demand rises, the supply of the tokes goes down. The value of tokens goes up.
There is a lot of marketing and other details that go into having an ICO. Once the fundraising hits the goals, they then distribute the tokens to the people who have bought them. If the company does not hit the goal, the participants will then get their funds back.
The Specifics of an Initial Coin Offering
The ICO is now known as the mother of crowdfunding projects and since 2017, many startups have used the convenient method to make sure they get the capital needed to get their projects off the ground.
In IPOs, there are many rules that you need to operate within so you can get to have one. As a company, this may take too much time and too much work that a lot of startups are either unwilling or unable to provide, unlike the ICO.
ICOs have become how a company can raise funds and entirely circumvent the process. The only thing you need to start an ICO is the website with the wallet where the money is sent. There are no legal boundaries, no investor protection and it is anonymous.
With ICOs being what they are, you will need to look at some key points that will help you know if something is worth investing in. if you do not want to fall victim to wobbly or scam projects, note the following things:
- Who is behind the ICO?
- What is the role of the token in the project and does it comply with the ERC-20 standard?
- What are the terms of the ICO itself?
- Do they have a roadmap and where does it lead?
- How do they intend to use the money raised?
- What is the integrity of the code? Is it public for inspection?
- Who are the advisors? Can you recognize anyone important (reputable) or meaningful there?
- What kind of community do they have surrounding this project?
- What are the legal implications behind what they are doing?
Initial Exchange Offering (IEOs)
In simple terms, it is a token sale supervised by a cryptocurrency exchange. They are only available for exchange users. Some of them may take place in several exchanges. Like ICOs, they allow you as a new investor to get cryptocurrencies or tokens while raising capital for promising projects.
Exchange backed ICOs have been a thing for a while now, but IEOs only gained traction after Binance Launchpad was introduced. There have been about 50 IEOs at the time of writing this and they have raised about $159 million collectively.
Where ICOs may not have much to back up the claims of the people asking you to invest, IEOs put the exchange’s credibility as the stake. The vetting process here is more serious. Not every idea gets backed by the exchange.
As with many of the new methods, the IEOs are not as straightforward and easy to corroborate as IPOs. There is a lot you need to know about the pros and cons of IEOs so you do not fall into traps. Here are some good things about IEOs:
- Increased investor confidence
- Security for investors and token issuers
- The process is frictionless
- The exchange listing is guaranteed
- There are no scams because the issuers are not anonymous
- Benefits for projects and exchanges
However, they are also not that good because:
- The number of investors is limited
- The regulations and restrictions are not very clear
- All investors have to comply with AML/KYC, which takes away privacy
- Bots may be introduced to beat out human investors
It is always good to go deeper and do the research that will enable you to have all the important information that will keep you safe from things that you may not have expected.
How To Find The Information on Initial Exchange Offering
As an investor, before you put your money into anything, there is one thing you should always do; due diligence. Research does not take much. All you will need to do is look through all the aspects and make sure you get as much information about the IEO as necessary.
Some steps that you will need to take include:
- Looking at the websites and knowing who the people behind the IEO What are their accomplishments?
- What kind of project is it? Are they solving something that hasn’t been solved before or are they regurgitating past projects with no originality?
- What are their market practices?
- Is the exchange a new thing to most people involved?
- Do they have all the documentation?
- Are their code and architecture up to par?
The whole gist of researching an IEO before taking part in one is to make sure that you never walk into something that will crash before anything meaningful happens.