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ICO vs. IEO: A Detailed Comparison Guide!

ICO vs. IEO: A Detailed Comparison Guide!

july 31, 2023 12:30PM

ICO vs. IEO Comparison

What is the difference between IEO and ICO? You may be familiar with cryptocurrency and have heard about Initial Exchange Offerings (IEO). New startups are forming that work on Blockchain and Crypto projects daily. They all need capital to launch their projects and engage developers and contributors. There are many ways to raise capital, including getting funding from venture investors (VCs) and pre-mining. All of them, however, are not good enough. Pre-mining—mining coins for a project before its launch—is often seen as a waste. We also want to discuss new ways of raising funds for Blockchain projects, called Initial Coin Offerings (ICOs) or Initial Exchange Offerings (IEOs). Keep reading if you're interested in IEO or ICOs, considering launching one, or investing in them. We define ICO separately and then explain the differences between ICO and IEO. Then, we discuss the IEO benefits for all parties.

What is an ICO?

Initial Coin Offerings, or ICOs, are new cryptocurrencies that are offered to raise capital. These new crypto coins, or tokens," are purchased by investors hoping to benefit from an increase in their value. Token issuers then sell them and raise money for their projects. This is a form of crowdfunding, but by creating new cryptos. The history of ICOs (Initial Coin offerings) dates back to 2013. Mastercoin, a digital currency and communication protocol layer, held its first ICO in 2013 and raised nearly $600,000. The money was raised to create a Bitcoin transaction and exchange platform. Following the success of Mastercoin's capital raising in 2013, many companies embraced the idea and launched their ICOs.

What is IEO, then?

IEO, or Initial Exchange Offering, is similar to an ICO. It's a similar way to raise money for new startups by selling crypto. As you can tell from the name, this involves raising funds through a cryptocurrency exchange. IEOs take place on a platform that is based on cryptocurrencies. Like ICOs, investors buy tokens before they are available on the market. In IEO, however, only members registered with the exchange can contribute. The company that wishes to launch an IEO must pay a certain percentage of the tokens sold in the IEO. Some fees may also be included. IEOs have become more popular because they claim to be more secure than ICOs.

What are the differences between ICO and IEO?

ICO vs. IEO Comparison

Now that you know the difference between IEO and ICO, let's look at what they are.

  • IEO Involves middlemen

    Unlike ICOs, crypto-exchanges are intermediaries between token issuers and investors in IEOs. The exchange platform looks at all the details of IEO projects to ensure they are a good fit for the market and have realistic goals. Understandably, the exchange would be strict when selecting IEOs to host. Their reputation is on the line. Investors can only be users of the crypto exchange where tokens are listed. The exchange platform allows them to buy tokens using their wallet. IEO differs from ICO in that it involves a third party.

  • IEO is more transparent

    Transparency is the next significant difference between IEOs and ICOs. Crypto exchanges require that new crypto startups follow a Due Diligence process. They must then disclose all details about their project, including the members of the project, information about the company, etc. They must also verify their identity by completing the KYC process. It is difficult for fraudsters and scammers to exploit fundraising methods. In ICOs, the token issuers do not have to reveal all company information. Then they create a site and publish a document. Then they launch their ICO and start selling tokens. You can see the problem. Anyone can launch an ICO to raise money. What if scammers and fraudsters use ICOs to make money and then disappear? You may now understand why IEO was created.

  • IEO pushes us towards centralization

    We have already mentioned that crypto exchanges are in charge of the IEO process, and token sales occur on their platforms. The more users they have, the more IEOs they can host, because they raise more money than other exchanges. People trust exchanges that have a better reputation. People trust exchanges that are popular and have a lot of users. This could lead to a centralised market. After a time, only a handful of exchanges will host IEOs and control the market. It is similar to the current centralised financial system. Central banks control money flow. This is impossible for ICOs, as a third party hosts them.

  • Gas War vs. Lottery

    Usually, token sales in ICOs or IEOs happen in a short period of time. The token sale could be over within a few moments. Many people may not be able to join the token sale. The ICO and IEO both have their own ways of resolving this problem. ICO created the idea of "Gas Wars." Gas is overestimated by investors. Early investors can benefit from discounts. This discount is based on the time they invest in the project. What about IEO instead? IEO is an alternative way of solving this problem. Investors who win tickets at random can purchase tokens from the first bidders. The more tokens you have in your account, the more tickets you will receive. It increases their odds of winning. Binance Launchpad came up with the solution for the IEO Matic Network during the IEO Matic Network. Here are the differences between IEO and ICO: We will now explain IEO's benefits to all parties.

Exchanges and IEO Benefits

Exchanges that host IEOs are there to assist startups in raising capital. No, of course not. Crypto exchanges can make more money by charging listing fees, transaction commissions, and taking a slice of token sales. Binance, for example, offers a reduced listing fee to those who use their tokens. They can do this by increasing the demand for their tokens. By hosting IEOs, they can increase their user base, become more popular, and attract more IEOs. Overall, hosting IEOs is a win-win for crypto exchanges. It is for this reason that they risk their reputation.

Benefits of IEO for token issuers

Let's talk about the advantages IEO offers startups. To begin with, token issuers who raise funds through IEOs do so by leveraging the reputation of crypto exchanges. They can be confident that their project will be trusted when they convince great crypto exchanges to host it. The tokens will be sold faster because the investors are confident that the exchange has done its Due Diligence and knows there is no risk. Second, there is marketing. During ICOs, startups must attract investors to the platform. They are expected to spend lots of money on marketing their project to get people to know about it. When they launch an IEO project, they are backed by a cryptocurrency exchange platform and can attract investors immediately. All users willing to contribute will be notified on the exchange's site. Here's how startups can benefit from IEOs.

The Final Words

The differences between Initial Exchange Offerings (IEO) and Initial Coin Offerings (ICO) were discussed. IEOs may be safer than ICOs for investing, but they are still not risk-free. It is because, although exchanges perform Due Diligence on all projects, this does not guarantee they will detect every fraudster. If a project is a fraud, they will not refund your money. You should also not ignore the vulnerabilities of crypto exchange platforms to hacker attacks. The Initial Exchange Offering is a relatively new method of raising funds, but it has quickly replaced the Initial Coin Offering. It will be the most effective fundraising method that transforms cryptocurrency banking in the long term.

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