An Initial Exchange Offering (IEO) is a token sale regulated by a cryptocurrency exchange. Except for some IEOs listed on multiple exchanges, only customers of the exchange hosting the IEO can purchase tokens on that exchange. Similar to an ICO, investors can buy the project's cryptocurrency (or token) through an IEO to fund potential projects.

What is an Initial Exchange Offering (IEO)?

Many people see IEOs as the next evolution of ICOs. Unlike ICOs, which often lack regulatory mechanisms and have resulted in numerous scams, IEOs are viewed as a more secure alternative, providing a safer way to participate in new token issuances. Securities Token Offerings (STOs) have also been recognized as a solution to ICO problems.

Even though exchange-assisted ICOs have been around for some time, IEO projects gained significant attention and investment following the launch of Binance Launchpad's first IEO in 2019. According to statistics, over 50 IEO projects in 2019 collectively raised more than $159 million.

IEOs generally promote legitimate projects since the exchange's reputation is on the line, leading to stricter vetting processes. Not all projects receive exchange endorsements, making IEOs more accessible compared to STOs, allowing almost anyone to participate and invest (with exceptions for countries under regulatory control; see the list below). The identity verification and anti-money laundering checks are managed by the exchange, reducing the regulatory burden on the token sales team.

In essence, an IEO is another way for cryptocurrency startups to raise funds, with the exchange acting as an intermediary. This support from the exchange helps increase the visibility, attention, and credibility of the fundraising project. After a successful IEO, the token issuer pays a listing fee and a predetermined number of tokens to the exchange as a service fee for the IEO platform. The tokens are then quickly listed on the exchange, providing immediate liquidity for investors.

Features of an Initial Exchange Offering (IEO)

Like ICOs, IEOs have a predetermined total token supply and pricing, with maximum and minimum purchase limits per investor, soft caps, hard caps, and accepted cryptocurrencies.

The main differences between an IEO and an ICO are that the tokens for an IEO are pre-minted before the crowdfunding begins. Additionally, tokens from an IEO can typically be traded on the exchange within days or weeks after the IEO is completed, offering investors the convenience of immediate liquidity. Lastly, the IEO process involves an intermediary (the IEO platform) that handles funds on behalf of investors, making IEOs more trustworthy compared to ICOs that lack a credible third party.