Digital Currency/Stable-Coin/Tokenization Series: IEOs To Feature As New Vehicles For Mitigating Investment Risks

IEOs are indicating to resemble the excitement to the retail-driven ICO bubble of 2017.

There has been a common consensus that the glory of ICOs are over after the 2018 bearish rout observed majority of ICO projects dropped by up to 97% from their all-time highs set in the froth of the 2017 bull run. 

2018 saw both the highest number of ICOs, at 1,075, and the largest USD sum raised in one year, at US$21.48 billion. During course of 2017-2018, we have witnessed lots of ICO-driven scams also that hampered the new finance and investment arena.

While an exchange-hosted IEO likely to mitigate several inherent risks that ICOs carried for retail investors. For one, an exchange is unlikely to risk damaging its reputation by hosting a fraudulent project, so the legitimacy of IEO applicants is thoroughly vetted. In addition, the exchanges conduct extensive due diligence to assess a project’s success potential. The exchange’s credibility is at risk if the market perceives it to be promoting ‘non-starter’ projects, choosing mature-stage projects rather than those with no product built. 

Hence, as per a research report by Brave New Coin (BNC), last year, the ICO model accounted for 98% of project funding, so far in 2019 ICOs register only for 18% whereas the IEOs account for massive 82%. 

An exchange-hosted IEO reduces several inherent risks that ICOs posed for retail investors. For one, an exchange is unlikely to risk damaging its reputation by hosting a fraudulent project, so the legitimacy of IEO applicants is thoroughly vetted. 

Initial Exchange Offerings (IEOs) can mitigate early-stage investment risk for retail investors and open up a new form of early-stage investing.

Whereas Initial Coin Offerings (ICOs) are peer-to-peer fundraising typically held on a project’s own website or facilitated by a specialized platform, IEOs are token sales hosted by a third-party exchange.

For the retail investor this has several risk-mitigating advantages over ICOs: the exchange performs due diligence so to ensure the high standard of the project, there is an immediate secondary market upon issuance which the investor can cash out of any time, and the exchange also has skin in the game with reputational risk. Courtesy: JPM