Initial Exchange Offering (IEO) vs Initial Coin Offering (ICO): What Are the Differences?

Simply put, unlike an ICO (initial coin offering), an IEO (initial exchange offering) is not open to the public. You’ll have to be a user of the hosting …

HodlX Guest BlogSubmit Your Post

Is the Initial Exchange Offering a new trend in 2019?

OK, let’s get to the point here. We’re not going to tell you how ICOs boomed in 2017 to early 2018. And we’re not going to stress on how billions of dollars were raised during that period of time. We’re just going to give you a simple comparison of the two models, from the point of view of an investor.

What is an Initial Exchange Offering?

Simply put, unlike an ICO (initial coin offering), an IEO (initial exchange offering) is not open to the public. You’ll have to be a user of the hosting exchange to participate in the token sale. While an ICO allows any contributors to buy the token for sale by sending funds into a specific address, an IEO requires contributors/users to buy the token by using the exchange’s accounts.

Isn’t an ICO supposed to be better?

Putting all other factors aside, maybe.

As the model is open to everyone in the public, it allows the project team to raise more capital, theoretically. But wherever the money goes – frauds and scams cannot be far behind. This is also one of the biggest reasons why ICOs cooled down in the past year. Scammers exploited the opportunity to raise funds without delivering the promised technology.

Is an Initial Exchange Offering the Old Wine in a New Bottle?

No. The biggest problem with ICOs is that they’re not monitored by any third parties. Basically, anyone can launch an ICO, as long as you have a white paper to convince investors to put funds into your company.

On the other hand, an IEO is a very, if not entirely, different model. While both ICOs and IEOs share the rationale of an initial public offering (IPO), in an IEO, the exchange becomes an administrator.

To conduct an IEO, the project team must meet and comply with the exchange’s requirements in order to launch the token sale. Contributors are, therefore, protected by the exchange.

Although some may argue that the exchange may go along with the project team to scam customers, this will put the exchange’s reputation at risk. Exchanges that look for a sustainable business model would not consider taking such an unethical move.

Instead, the exchange is risking their credibility when doing IEOs, since it has no control over the IEO project team’s operation and product delivery as promised in the latter’s white paper. To maintain trust with its customers, the exchange must carry out a comprehensive assessment of the project before launching the IEO. This provides an extra layer of protection to contributors.

Compared to ICOs, the risk of IEOs is much lower for both the project team and contributors.

On the customer’s side, not only will the exchange help them review the projects and filter out scams, but it also provides better liquidity for trading afterward as a large user base is already guaranteed. The exchange will also offer a convenient platform for contributors to manage their funds as all assets can be stored in the exchange account instead of different wallet addresses.

For project teams, they are eased of operational hassles. For example, all the exchange users have been vetted by the exchange’s KYC/AML verification. The exchange will also provide liquidity with its user base, and also help on marketing promotions.

With all the scams and frauds out there, an IEO is no doubt a better model for the contributors/customers. Despite more processes required for both project teams and contributors for the token sale, the extra protection offered is worth the cost.


Risk Warning: Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

This post originally appeared on Medium. Read more.

OKEx is a world-leading digital asset exchange headquartered in Malta, offering comprehensive digital assets trading services including token trading, futures trading, perpetual swap trading and index tracker to global traders with blockchain technology. Currently, the exchange offers over 400 token and futures trading pairs enabling users to optimize their strategies.

Check Out the Latest Headlines


Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

Why Nigeria has the Potential to Make Cryptocurrency Dominant in Africa

At present, cryptocurrency is still yet to take its full course in any country on the African continent. With several hinderances from the government and …
Why Nigeria has the Potential to Make Cryptocurrency Dominant in Africa
Cloudbet

At present, cryptocurrency is still yet to take its full course in any country on the African continent. With several hinderances from the government and traditional banks, it is nearly impossible for any cryptocurrency, be it Bitcoin or any other altcoin to receive full adaptation from African citizens.

Despite this, quite a lot has been made possible with cryptocurrency in Africa. Specifically, Senegal where music star Akon sets out to launch the Akoin cryptocurrency, Uganda has also been home to Binance’s fiat-to-crypto exchange with over 70% of Ugandan’s signing up. Other countries like Kenya and South Africa has also recorded an increased rate of cryptocurrency userbase despite regulatory issues.

However, some of the most populated countries in Africa, which would naturally be expected to birth the most success is still very much behind on cryptocurrency adaptation, Nigeria being one of them. With a population size of over 190 million, cryptocurrency is only hitting this country at its surface.

The Nigerian constitution in itself, like many other countries, does not exactly recognize cryptocurrency as a legal tender, and with a vast population of traditional banking as the country’s main financial glue, it is nearly impossible for cryptocurrency to kick off in swiftness with all these factors in place.

Meanwhile, an outstanding factor reflected in the rate of Ponzi scheme investment in Nigeria still qualifies it as the one country that cryptocurrency, when fully regulated can pioneer a crypto-domination in Africa.

Asides from being the most populous black nation in the world and having one of the most entrepreneurship-oriented environments, two of which are already outstanding factors that can independently pioneer this dominance, Ponzi scheme have continued to thrive in Africa time and time again and while this is largely a gamble, Nigerians have been more receptive of independent financial organizations in a bid to make profit online than through any other means.

One of the most pronounced cases of the Ponzi-scheme obsession can be traced back to the year 2016 when the fraudulent Russian owned Mavrodi Mundial Moneybox (MMM) launched in Nigeria. In a span of one year, millions of naira had already been fully invested in the Ponzi scheme, with a large number of Nigerians investing both business and personal finance, little did these unsuspecting investors know that a year later, the platform would take a downturn that would go on to leave many Nigerians in debt, with some others meeting their demise.

Despite this unprofitable turnout, a good number of Nigerians are still invested in Ponzi schemes, this doesn’t only communicate defiance, it also communicates a nation of individuals that would much rather have an independent financial structure for financial management and profit making.

And the internet even makes this easier. Entrepreneurs in the nation have also voiced the swiftness and transparency that precedes the use of cryptocurrencies in their business and personal finance. This goes to show that more than trading and profit making, Nigerians are buying into cryptocurrencies for its flexible ability to conduct business transactions.

What’s Your Thought On This ?, Let Us Know In the Comment section Below.


♥Get Daily Crypto News On Facebook | Twitter | Telegram | Instagram


Related Posts:

  • No Related Posts

Cryptocurrency exchange failure highlights due diligence in investment decisions

As with any new investment, there are always risks that have to be carefully weighted before proceeding. The recent failure of cryptocurrency …

Janet Rabovsky | March 5, 2019

As with any new investment, there are always risks that have to be carefully weighted before proceeding.

The recent failure of cryptocurrency exchange QuadrigaCX (QX) is certainly upsetting for those who may not recover their money. QX is an exchange where individuals can buy Bitcoin or other cryptocurrencies and store them in a wallet. Cryptocurrencies are interesting because they can be considered both a currency (store of value) and an investment category (people acquiring them hoping for capital appreciation).

When I look at the QX situation, I’m struck by three particular risks that don’t seem to have been managed by those who chose to use the platform. These are proper due diligence, key person risk and safe custody of assets.

Read: OMERS expanding presence in blockchain, cryptocurrency sector

We always advise our clients to review the manager and product according to specific criteria — business, people, process, fees and performance. It’s important to do research on the organization sponsoring the management team and product.

How long have they been around? Are they well-capitalized? How are they governed? Are they aligned with their investors? How is the investment team compensated and incentivized? Is there succession within the investment team? Is the process well-understood, sustainable and repeatable? Are the results consistent with the stated philosophy and approach?

Quadriga Fintech Solutions, the owner of QuadrigaCX, was founded in November 2013 to complete local Bitcoin trades, but expanded to include an online exchange of multiple cryptocurrencies by 2014. From 2016 onward, the sole director was also the founder of QX, and the firm operated with a few contractors but no employees. The QX business appears to have little corporate structure, governance or financial backing.

Read: What are the merits and risks of investing in Bitcoin?

The full story is still unfolding, but it would appear that individual wallets held by QX can’t be accessed, since the “key” was only known to one individual, the founder who’s now deceased. Key person risk is something institutional investors have to deal with regularly in the management of their assets.

Relying on a talented individual — or individuals — to manage their money isn’t for everyone, but for those who believe the opportunity is worth their while, there are ways to mitigate this risk. In the context of public markets, having direct title to the assets is one way to minimize the risk, if for some reason the individual isn’t available to manage the assets (termination, resignation, health impairment or even death).

Pooled funds offer a bit less protection in the case of a key investment professional.

However, unit holders can hire a new manager and/or sell their assets. From the context of private markets, there are usually key person provisions in the limited partnership agreements that spell out what will happen if a key person (or more than one key person) isn’t available to manage assets for the contracted period. Remedies can range from finding another general partner to full liquidation of the assets.

Read: The vast potential of blockchain technology

Most often, institutional investors’ assets are safe-custodied by a third party, a custodian responsible for maintaining proper records, including title to the assets. The custodian also provides price discovery of the assets, ensuring an independent review of their value.

I’m reminded of a time earlier in my career (the mid-1990s) when many global equity portfolios managed by U.K.-based managers were self-custodied. This ultimately changed for two reasons. First, investors wished to receive valuation of the assets independent of those managing them; there’s an inherent conflict when someone is setting the price of an asset for which they’re being compensated.

Second, institutional investors preferred to maintain their assets in one place, which enabled better oversight and surety of title, as well as ease of movement of assets. Maintaining these records requires technology, which can be expensive, and investors preferred to maintain their assets with organizations that were well-capitalized.

Read: What Bitcoin investors can learn from the rise and fall of gold, dot-com companies

In the case of cryptocurrencies, the valuation is ensured through the blockchain technology, which maintains a record of each transaction, and the price at which it was undertaken. However, the cryptocurrency exchanges, such as QX, are untested when it comes to safe custody.

Hopefully, there will be a positive outcome for the holders of the “lost” wallets. Regulators are now reviewing the situation to better understand what happened and to see if any securities laws have been broken. The real lesson is that investors need to apply proper due diligence and apply the same decision framework they would to more developed investments.

Janet Rabovsky is a partner at Ellement. She has more than 25 years of experience in the industry. These are the views of the author and not necessarily those of Benefits Canada.
Copyright © 2019 Transcontinental Media G.P. Originally published on benefitscanada.com

Related Posts:

  • No Related Posts

Ripple XRP Now Available to Retail Investors on Coinbase.com and Its Mobile Apps

The move will provide additional liquidity to the XRP markets and make the cryptocurrency available to a greater number of retail investors, especially …

XRP is now available to retail investors on Coinbase.com and the Coinbase iOS and Android mobile apps. The move comes shortly after the exchange listed XRP on Coinbase Pro, its trading platform designed for more sophisticated users.

On Feb. 28th, Coinbase announced that users will now be able to buy, sell, send, and receive XRP on Coinbase.com, the exchange’s flagship service catered towards retail investors. The move will provide additional liquidity to the XRP markets and make the cryptocurrency available to a greater number of retail investors, especially in the US.

That said, for many, the listing has had less of an impact on XRP’s price than expected. Usually, when a coin is listed on Coinbase it experiences a sharp increase in price.

There are several examples of this in 2018. 24-hours after listing on Coinbase, 0x (ZRX), Ethereum Classic (ETC), and Basic Attention Token (BAT) were trading up at 15, 14, and 9 percent, respectively. Meanwhile, in 2019, XRP was up less than 4 percent following its listing on the exchange.

Considering that listing has a material impact on the price of a coin, if the cryptocurrency markets are anything like traditional securities then Coinbase may need to follow regulations to prevent insider trading and frontrunning. Moreover, this requires that Coinbase keeps decisions around listings secret until announced to the public.

Yet, trading activity seems to suggest that insider information about the XRP listing was leaked, allowing some traders to leverage the news for profit.

In traditional markets, regulations to prevent insider trading exist to both protect retail investors and to help maintain fair and competitive securities markets. If there was indeed an information leak—or worse, insider trading—then such an incident could increase the perceived regulatory risk of trading cryptocurrency, and consequently, reduce the likelihood that regulated financial institutions will participate in the crypto markets.

Nonetheless, the full listing on Coinbase is positive for both liquidity and access to XRP. The move may also prove advantageous for associated company Ripple, which is using its huge XRP reserves to finance ecosystem and technology development, potentially allowing the company to command a higher price for its XRP holdings as it sells them to institutional buyers.

Commitment to Transparency: The author of this article is invested and/or has an interest in one or more assets discussed in this post. CryptoSlate does not endorse any project or asset that may be mentioned or linked to in this article. Please take that into consideration when evaluating the content within this article.

Disclaimer: Our writers’ opinions are solely their own and do not reflect the opinion of CryptoSlate. None of the information you read on CryptoSlate should be taken as investment advice, nor does CryptoSlate endorse any project that may be mentioned or linked to in this article. Buying and trading cryptocurrencies should be considered a high-risk activity. Please do your own due diligence before taking any action related to content within this article. Finally, CryptoSlate takes no responsibility should you lose money trading cryptocurrencies.

Did you like this article? Join us.

Get blockchain news and crypto insights.

Follow @cryptoslateJoin Us on Telegram

Related Posts:

  • No Related Posts

Founders of Ponzi Scheme My Big Coin Arrested

Speaking of justice, founders of a cryptocurrency-related Ponzi scheme which was masquerading as an Initial Coin Offering (ICO), My Big Coin, have …
Share with your friends

A popular adage says, “Justice delayed is justice denied.” However, that may not always be the case. Sometimes, justice may be delayed because regulators may not have an idea on how to proceed in a particular case.

Speaking of justice, founders of a cryptocurrency-related Ponzi scheme which was masquerading as an Initial Coin Offering (ICO), My Big Coin, have been arrested after a long drawn legislation. The founder, Randall Crater, claimed this cryptocurrency would be backed by $300m in gold reserves. With such reserves in place, one wouldn’t necessarily need investors to contribute additional funds, although some people saw merit in this concept regardless. Based on a recently submitted court document, it quickly became evident there were never any gold coins nor gold assets to speak of, as was reported by news portal, The Merkle.

Advertisement

The news portal further stated all individuals have been arrested on seven counts of fraud and unlawful money transfers. The culprits claimed My Big Coin would be backed by 100% gold and was a safer investment than any FDIC-backed venture. Such blatant claims are what attracted the defrauded investors, but most people saw this as a major red flag.

Earlier, a district court had upheld the charges that were brought forward by the Commodity Futures Trading Commission (CFTC) against the ICO. In the past, the regulatory body had said, “MBC is a virtual currency and it is undisputed that there is futures trading in virtual currencies (specifically involving Bitcoin).” The Court, upholding the CFTC’s version said that commodities could be extended to a host of specifically enumerated agricultural products as well as ‘all other goods and articles . . . and all services rights and interests . . . in which contracts for future delivery are presently or in the future dealt in.”

Liked what you read? Join us on Telegram

Sponsored Content
recommended by
Share with your friends

Related Posts:

  • No Related Posts