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Should you Invest in Initial Exchange Offerings (IEOs)?

TheMerkle Cryptocurrency Investing patience

In the cryptocurrency world, making money is the number one priority for most users. Doing so has become both easier and more difficult in recent years. One new trend worth keeping an eye on comes in the form of Initial Exchange Offerings, on IEOs in short. However, these investments are never a guarantee for making money, as one should always conduct their own research first and foremost.


The IEO Concept Explained


As the name somewhat suggests, Initial Exchange Offerings involve the use of cryptocurrency exchanges or trading platforms. For project developers looking to sell their token, an IEO can prove to be a rather appealing solution. The exchange supporting this token sale will aid in the fundraising process by acting as a counterparty. Additionally, the exchange involved in this process will usually facilitate the trading of the IEO token once the sale itself has been concluded.


As is to be expected, an Initial Exchange Offering has a few strings attached. For project developers, they can opt to sell tokens at a fixed price through the exchange. However, the trading platform can force projects to impose a hard cap on the number of available tokens. Additionally, they can also force users to adopt the native exchange’s token to partake in an upcoming IEO as a way to perform “Know Your Customer” of sorts. The possibilities are virtually limitless, although it will take a while until this concept can rival the popularity of ICOs and STOs.


In the long run, IEOs can bring a lot more legitimacy to the cryptocurrency industry. Unlike ICos, these sales should – under normal circumstances – reduce the number of potential scams on the market. If there is one thing to take away from the Initial Coin Offering industry, it is the vast number of exit scams, fake projects, and fraudulent offerings. While there is no guarantee all IEOs will be legitimate in the long run, the business model can be rather appealing to the right individuals. One has to put a lot of trust in the exchange facilitating this sale, though, which may not necessarily be as straightforward as some may think.


Advantages for Exchanges and Investors


The Initial Exchange Offering concept brings some other potential advantages to the table. For exchanges, the sale of such tokens can offer them additional marketing at little to no extra cost. Since the projects will hype the sale of their sale, the exchange’s name is also put front and center. Additionally, the trading platforms will usually receive financial compensation for this particular listing. Last but not least, their user base may increase exponentially as more IEOs are organized in the future.


Investors can benefit from this form of investment as well, even though it remains a risk regardless. Investors only have to deal with the exchange directly, as it will offer a wallet service for the token and facilitate trading as well. As exchanges do not want to ruin their reputation by partnering with fraudulent IEOs, the investment itself should be a lot “safer’ in the end. While users will need to go through a vetting process of some sort to partake in an IEO, it is a more professional way of investing in new cryptocurrency projects and services.


Not Everything is a Success


As promising as this business model sounds, it is still not gaining mainstream traction. Although some IEOs have taken place in recent months, their number remains fairly limited. BitTorrent Token is an IEO which got a lot of attention, yet its price has crashed significantly ever since the token sale concluded. Other projects are not faring too much better, thus it remains to be seen if Initial Exchange Offerings will make a big impact on the industry as a whole.




Disclaimer: This is not trading or investment advice. The above article is for entertainment and education purposes only. Please do your own research before purchasing or investing into any cryptocurrency.


Image(s): Shutterstock.com



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