Whether the IEO is successful or not, attracting many investors or not will come with the reputation of CEX. Investors participating in this form of invetment will be able to purchase tokens of new projects directly from their exchange accounts.
IEO means initial exchange offering and is carried out on the platform of a cryptocurrency exchange. In contrast to an Initial Coin Offering (ICO), it is managed by a cryptocurrency exchange on behalf of a startup that seeks to raise funds with newly issued tokens.
A successful IEO benefits both the exchange performing the IEO, the startup project and the investors. However, the risk will only exist for investors and startups, and for exchanges, the risk is almost negligible. Therefore, we will learn the advantages and disadvantages of each aspect, both for the project and the investors.
Advantages
For start-up blockchain projects
- There is no need to worry about marketing the project to users because the exchange will do it for them, which can help reduce a lot of costs for promotion but still reach a large number of interested people.
- Access to a large number of available investors from all over the world.
- The IEO through the exchange shows that their project is a project with good technology that should receive the trust of investors and has been carefully censored by exchanges. This helps to increase the credibility of the project in the eyes of investors.
- Increase liquidity for the project coin/token when the coin/token begins to be publicly traded.
For investors
- Investors do not need to spend time learning about the technology and platform of the project anymore because the exchanges have already done this for investors.
- Investors can buy tokens at the initial starting price of the project, and many projects have successfully IEOs, helping investors earn profits up to thousands of %.
- Information about IEO projects is transparent, unlike conducting ICOs where only certain people can participate.
- Fair to investors because anyone can participate
For exchanges
- Exchanges derive value from trading volume. When the token is first listed, in a rush, tens of thousands of users will join to increase trading volume. Therefore, besides the transaction fees, the exchanges also ranked in the ranking of exchanges with high volume at that time.
- Attracting users to the exchange when many people want to participate in the project’s IEO, it is mandatory to register an account of the exchange.
- The demand for the exchange’s native token increases because exchanges often require investors to hold a certain amount of tokens to participate in IEOs, for example, if you want to participate in IEOs on Binance, investors need to keep BNB tokens in their wallet or participating in IEO on FTX, investors need to keep FTT tokens in their wallet. This increases the demand for BNB or FTT, which can help it increase in value.
Disadvantages
Although IEO has many advantages, but because it is related to the cryptocurrency market, its risks are not small.
For blockchain startups
IEOs are a paid service and the listing and marketing fees of the largest exchanges are quite high. In fact, the cost is so high that not all projects can afford it and it is not possible to guarantee that an IEO will definitely bring success.
For investors
Participating in IEO can bring investors extremely high profits, but not every project is successful. There are still projects after a long time that the price of the IEO token did not increase significantly, but went sideways and even fell sharply compared to the price they bought in this form of investment.
Besides, in order to buy IEO coins/tokens, investors need to lock the main token of the exchange for a certain period of time, which can cause damage to investors if the market shakes strongly. The price of that main token dropped sharply and investors did not have time to exit.
In addition, because the demand to buy coins is so great that only a part of the supply is sold through IEO, the exchanges also hold a draw to see who is entitled to buy and how much to buy. And when participating, investors will also lose transaction fees.
Conclusion
Hopefully the reading will help investors who can provide more information about the disadvantages of IEOs. If you have any other questions or suggestions, please leave a comment to be answered and to help improve the article.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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