With Over $1.4 Bln Raised in 2019, Are IEOs Replacing ICOs?

Against the backdrop of declining ICO numbers, a new trend quickly gaining momentum in the crypto space — you guessed it IEOs! In late 2017 and early 2018, there were fewer than a dozen Initial Exchange Offering projects — a spinoff of the ICO model of fundraising but in 2019, that number is close to a hundred.

In May of 2019, the funds raised by IEO projects crossed the $1 billion mark with total funds raised by IEO projects globally reaching over $1.6 billion dollars with a majority of these funds, a majority of these funds ~$1.4 billion was raised in 2019 alone (source).

On the other hand, ICOs have raised ~$1.1 billion so far into 2019, so for the first time, funds raised by IEO projects have crossed funds raised by ICO projects (source)!

Funds Raised by IEOs during 2019

Source

*Total funds raised includes $1 billion raised by Bitfinex. Not represented in graph

With such large sums of money being raised by IEO projects in such a short time frame, the important question here is “are startups preferring IEOs over ICOs? If so, why?”

The Initial Exchange Offering model

IEOs are actually very similar to ICOs in the sense that they are both tokenized forms of crowdfunding that appeal to global investor pool with a very low barrier of entry, meaning literally anyone could participate if they wanted to. The key difference between the two is simple — in an IEO a cryptocurrency exchange facilitates the token offering on its platform and subsequently lists it, while in an ICO, the project management team is responsible for marketing, payments etc.

A major factor responsible for the meteoric growth of the Initial Coin Offering model was the fact that it enabled access to a global investor pool very easily which is in stark contrast to traditional venture funding.

Traditional venture funding requires investors to prove a certain amount of wealth, in the US for example — one must have a net worth of at least $1,000,000, excluding the value of one's primary residence, or have an income of at least $200,000 each year for the last two years (or $300,000 combined income if married).

Given the technology and the low barrier of entry, these tokenized crowdfunding projects disrupted the venture funding space and carved out a space for its own.

With the roll-on addition to the ICO model — the IEO — it appears to be ludicrously easy to invest in a project and the subsequent liquidity created by the launchpad ensures investors have an exit on the exchange. This presents a major advantage to the ICO model where a large number of ICOs never listed on an exchange leaving investors with worthless tokens and no place to trade them.

Image courtesy of Medium blog