Understanding Crypto Investment Dynamics with IEOs and ICOs

Exploring the ICO and IEO with Crypto Investment Guide for Safety

What is ICO?

ICO stands for “Initial Coin Offering’. ICO is a method by which any company can raise money for cryptocurrency projects. It was formerly a popular method used for early-stage funding in various cryptocurrency projects. In an Ico, a blockchain startup can offer its own native digital token of a certain amount. The digital token can be offered to early-stage investors in exchange of other popular cryptocurrencies like bitcoin.

ICO allows startup to raise funding without having to give up equity and also to create a credible community of investors who want to project to succeed and can presell token subject to rise. Even though ICO’s provide an innovative mechanism for fund raising, it gives an added advantage to buyers by allowing them access to token confers as well as to the increase in token’s price after the success of platform. ICO are a great option to fund open source software projects that are difficult to fund otherwise.

One of the first success stories of ICO was Ethereum’s ICO. The platform raised $15.5 million in 2014. Fifty million ether tokens (ETH) were sold at $0.311 each, and on May 12, 2021, it hit an all-time high of $4,382.73, offering investors a 1,408,903% return on investment. Now not only is it one of the most valuable cryptocurrencies, but it has enabled an entire ecosystem of decentralized applications (dapps) to blossom from its technology.

Risks of ICO investments

Tokens sold as an ICO are considered to be high risk investments. ICO investments can be risky as they can be subjected to scams as the market is still under-regulated. Investors do not have any security if an ICO turns out to be fraudulent or fails to rise in value. According to a Satis analysis conducted by Bloomberg in 2018, about 80% of ICOs at the time were thought to be fraudulent transactions.

ICO tokens that have led to successful sales are listed on crypto exchanges. However it is seen as a common practice that ICO investors can offload their discounted coins in the market to secure an easy and fast return on their investments. It is important to know that the token prices can have a heavy increase and drop in prices. According to a 2018 survey, more than half of ICO ventures failed to last more than four months after they were launched. Here is a list of over 2,400 failed ICOs, sometimes known as "dead coins."

What is an IEO ?

The sales of ICO’s after the Securities and Exchange Commission pursued issuers for securities breaches, sales fell out of favour. IEO came in as a more secure mechanism to raise fund for token that can be directly traded or exchanged.  IEO stands for Initial Exchange Offerings. Once the listing is posted on a trusted site it creates a sense of validity for the token. This leads investors to believe that the exchange has vetted the project and ensured its legitimacy. For example, Binance Launchpad offers research papers on all new tokens listed for an IEO. Those reports, on the other hand, aren't critical of the initiatives they list; they just explain how they work.

The advantage of IEO’s is that they are directly listed on the exchange. So all the new projects gain access to a highly liquid market which allows them gain access to investors who are eager to buy tokens which enables high possibility for sales. Some IEO’s Allow users to purchase new tokens with funds they currently have on the market, making it extremely simple for users to invest in new projects.

Risk for IEO’s 

IEO’s cannot be considered a more secure investment than ICO’s. They can be considered as centralized gatekeepers for the type projects that spread. Projects must also pay to be listed on a centralized market, which means that only well-established projects are eligible. They may also be required to sign exclusivity agreements that ban them from listing coins on other exchanges.

Key difference between IEO and ICO 

The key difference between is the way of fundraising methods. The fundamental distinction is that a business seeking funding through an IEO has a significant partner, namely a crypto exchange that functions as an intermediary between the project's developers and investors. The crypto exchange examines firms that apply for an IEO and manages token sales. Developers use an ICO to launch a marketing campaign. They do this through paid advertising, forums, and social media. The exchange takes over this responsibility with an IEO. In an IEO after tokens are sold, they are listed on the exchange within a few days. Tokens from an ICO are frequently not offered on cryptocurrency exchanges immediately, but rather months after the token sale concludes. In other circumstances, the listing never occurs, and the project fails. 

Conclusion

Are IEOs or IDOs more secure than ICOs? No, not always. The only difference is the platforms' vetting methods permit new projects that they believe are a suitable fit for the platform. That does not mean that they are a better investment than an ICO. You should conduct your own research before investing in a new token. 

Also read - Will Crypto Ever Become a Currency of Mainstream