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Why Crypto Exchanges Have Cornered the Market for Token Offerings
The IEO (Initial Exchange Offering) is a blockchain phenomenon that nobody saw coming. By the end of 2018, it was already apparent that the ICO was dead in the water. This inevitability was due to a combination of factors - too many scam offerings, regulatory intervention, and an overall diminishing interest in cryptocurrencies due to the ongoing bear market. But at the time the ICO was going under, all eyes were on the Security Token Offering (STO) as the next big thing in blockchain crowdfunding.
However, all the STO predictions failed to come to fruition. When PwC released it’s 5th annual ICO/STO report in June this year, IEOs had raised over six times the total sum raised by STOs, $1.54 billion compared to $241m. Even discounting the $1bn IEO from Bitfinex, IEOs generated twice the value of STOs.
What’s Driving the Appetite for IEOs?
For the benefit of the uninitiated, an IEO is essentially a version of an ICO that’s conducted through a cryptocurrency exchange. An exchange will offer a new project’s tokens to its customers for a fixed period, after which it will list the token for trading.
The ICO came with a lot of inherent risk for investors who never knew if they would be stuck with illiquid, untradeable tokens once they’d bought in. The IEO offsets this risk by guaranteeing that the project will be listed on the exchange post-offering.
As the exchange is marketing the IEO project to its customers, there’s a general acceptance that there will have been a due diligence exercise. After all, no exchange will want to list a dud project with illiquid tokens.
These reasons mean the IEO has proved to be a hit with investors. However, for startups, it also provides an easy means to get their project to a ready-made market, and the exchange takes care of all the KYC compliance.
Many exchanges such as Binance and Huobi operate their own exchange tokens, so denominating IEO sales in these native tokens offers the opportunity for a liquidity boost. Although there is little transparency around listing fees for an IEO, it seems beyond doubt that it provides an additional revenue stream for exchanges. Plus, trading platforms have the opportunity to get involved early with promising startups that could potentially increase overall liquidity if the project proves popular.
For this reason, dozens of exchanges are now offering their own version of the IEO launchpad. Binance, Huobi, Coinbase, and Bittrex, as well as many smaller exchanges, now all offer the service. Some of the biggest names to take the IEO route are Matic Network, a second-layer scaling solution for Ethereum, and Bittorrent.
So, What’s Hot on the IEO Scene Right Now?
One of the more intriguing projects on the calendar is QAN, a quantum-resistant, enterprise-grade smart contract development platform. In case you missed it, news recently emerged that Google has allegedly achieved quantum supremacy, where a quantum machine performs calculations that cannot be done by current computers.
Most blockchains are reliant on a variant of key cryptography that is potentially vulnerable to brute-force attacks by quantum computers. However, QAN is secured by a form of post-quantum cryptography known as lattice cryptography, meaning it’s future-proofed against the quantum threat.
Furthermore, QAN offers various features designed to overcome the challenges of its predecessors and make it an attractive proposition for enterprise adoption. Ethereum users must pay gas fees for smart contract transactions, which fluctuate depending on network traffic. In contrast, QAN is using a fixed-fee model denominated in fiat currency, enabling businesses to accurately predict their transaction costs.
QAN is programmable in several languages, opening up the platform to a broader range of developers. It’s also highly scalable, achieving thousands of transactions per second. The project will be undergoing an IEO on the Bitbay exchange on Q4 2019 after a private funding round completes and is targeting a full launch during the second quarter of 2020.
Another upcoming IEO worth watching is that of Brave New Coin. The name may be known to those familiar with the cryptocurrency media, as it’s an established news outlet. However, the company is now launching its own cryptocurrency wealth management platform called BNC Pro. The platform will offer features including personalized portfolio management, a newsfeed, and price discovery for over 1500 digital assets.
BNC Pro will be accessible using the BNC token, which is to be offered to customers of the Liquid exchange as part of an upcoming IEO.
The IEO is Here to Stay
Without the IEO, the blockchain startup scene in 2019 could have gone the same way as the ICO. Security tokens may offer a different route to market, but it’s proving too slow and cumbersome for many startups. Until the STO market removes the barriers to entry, the IEO seems set to last the distance.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.