The 6 Surprisingly Important Differences Between ICO IDO & IEO

Differences between ICO IDO & IEO-Cover

Introduction

Thinking of establishing new products and expanding your business, then what comes to your mind first?

Is it the thought to raise funds for your new expansion of the venture? If yes, then you would think of going for a financial loan or some kinds of investments from lenders or even the banks.

Well, these are traditional methods; the evolution has brought up many new things and in terms of raising funds, it’s the era of cryptocurrency.

And not only has the financial world changed with cryptocurrencies, but cryptocurrencies themselves have also evolved over time. From the bitcoins to the market of digitized tokens, there is much to learn and practice in crypto, investing, and its profits.

The craze for cryptocurrency is growing day by day. And now the companies are raising funds through crypto via token sales.

The methodology behind this type of fundraising is that the company creates crypto tokens and issues them to the public in exchange for fiat currency, Bitcoin, Ethereum, etc. to begin their blockchain and crypto startups. Hence this whole process takes the name of ‘Fundraising by token issuance.’

Fundraising options

This fundraising in terms of cryptocurrencies is quite vast. Subsequently, it offers plenty of options for the new projects to raise funds. The very common methods to raise funds are as follows:

In this article, we will be covering the above three popular methods. Additionally, we will try to figure out which is better by going deep on the topic “differences between ICO IDO & IEO”.

If you want to quickly go through the comparison we have also compiled a Comparison Table for differences between ICO IEO & IDO here

What is ICO- Initial Coin Offering?

What is ICO
What is ICO?

The term ICO means Initial Coin Offering which is one of the well-known methods that serves to raise the funds for the companies who wish to expand their projects without getting into the unregulated type of crowdfunding.

An Initial Coin Offering is a token sale or said coin sale offered by the company seeking to raise funds as a virtual currency.

Investors can buy these tokens in exchange for funds or another cryptocurrency. Moreover, these tokens or the coins bought by investors may be used in a way related to any product or service offered by the company like liquidity mining, staking, etc. Or else, one can see it as a share of that particular company.

Talking about the history of ICO, Master coin launched the very first ICO in 2013. This first-ever ICO was able to raise funds of $600,000. Further, in 2014 came the second ICO, launched by Ethereum( it is the second-largest blockchain network). This also successfully raised funds of a whopping amount worth $18 million that too in just 42 days.

Benefits Of  ICO- Initial Coin Offering

ICO Benefits
Differences between ICO IDO & IEO – ICO Benefits

The ICO can prove beneficial in many ways.

A. Easy to buy tokens

The ICO has benefits over the large-scale initial offerings like IPO. One needs to launch these IPOs under high rules and regulations. On the one hand, only the people having a net worth over $1 million can buy an IPO.

In contrast, anyone can buy an ICO irrespective of their net worth. This buying process of ICO is at most times anonymous.

B. Global Market Reach

Initial Coin Offering is available globally. Investors from all around the world can invest in them whenever they wish to invest. The reach for ICOs is not limited to any specific country, unlike traditional company stakes.

C. Easy access, limited barriers

Tokens dominate the ICOs in terms of launches as the token launches can take place anywhere and from whoever they wish to buy them. Hence it creates a chain with the least possible barriers to entry.

For example, Ethereum was such an ICO that does not have any physical presence (digital asset) but is one of the most successful ICO.

This is the best thing about the ICOs that the projects that wish to raise funds don’t need to go through long processes to get the approval.

D. Liquidity 

Another positive aspect of the ICO is its liquidity. It is very clear that the new investment options lack liquidity and cases even exist where people do not get access to the capital for years.

But ICO offers quite a good liquidity, where the current value of the project defines the pricing.

E. Decentralization and transparency

ICOs are easily available in exchange for the cryptos especially, and just the basic requirement is to transfer the funds on time.

Since all the transactions are available on the blockchain, people like you and me can access the details anytime.

F. Other benefits 

Some other benefits are that it is a good profit earning platform for the ICO managers where they work to generate the tokens according to the terms of ICO and then distribute them to the investors individually.

Moreover, the initial investors also gain a good return on their investments by supporting projects at an early stage.

Furthermore, the ICOs really prove helpful for the projects making them raise funds as per their requirements and this could lead them to expand their business to new heights.

How to launch an Initial Coin Offering?

For this, the very first step is to set up the blockchain technology which successfully provides a value to the clients.

The next step is to get the overall knowledge about all the rules and regulations as well as the security laws which the SEC determines.

Once done, you should draft the white papers for investors to read about

  • Your concept,
  • the technology that you use
  • Roadmap of your project
  • Expectations from investors like lock-in periods, minimum investment, etc

What are the problems or risks of an Initial Coin Offering?

ICO Shortcomings
ICO Shortcomings

ICO is a high-risk investment; and along with having benefits, it does have the risks and problems associated with it. A few of them are:

i. Uncertainty in investment

The Initial Money Offering projects are at a very initial stage of development. The ICO does not ensure the success and the surety about the profits.

Therefore, there always exists uncertainty about whether the project will be a failure or a success.

Also, the uncertainty in the rules and regulations is questionable when it comes to the fines charged or the extra costs/ penalties charged in case the project contravenes the limited but strict Government regulations.

ii. Security risks 

Being in the very initial stage of the development and establishment of the method this ICO also has some IT based risks that as of now the testing done is not adequate. There does exist the risk of hacking, errors in coding, etc.

iii. Risk of instability

The investment currencies in the ICOs always are at risk of losing their value exceptionally and this might get quick. Moreover, there is almost no information about the token holders.

A popular example of the above is the ‘Squid Games token’ that plummeted by 99.99% in minutes.

What is the future of Initial Coin Offering?

Well, talking about the future, the ICOs indulge in a lot of scams and frauds. According to reports, around 80% of the sale of ICO was a total scam that was worth $9 Million.

Accordingly, due to high risk of security in Initial Cost Offerings, developers & investors keep exploring other methods of fundraising.

What is Initial Exchange Offering (IEO)?

What is IEO
What is IEO?

IEO stands for Initial Exchange Offering. This is a new method to raise funds introduced after the ICO.

The IEO works on the cryptocurrency exchange rather than the token sale. Basically, this is a blockchain model for fundraising but with a much-improved system as compared to the ICOs. It is believed that the development of IEO arose due to the dwindling trust of investors in the ICOs.

Although this IEO is also meant for fundraising, the operating platform is way different. It involves the distribution of the tokens to a set of investors where the company that is willing to raise funds has to partner with a Cryptocurrency exchange.

It is hence the responsibility of the Cryptocurrency Exchange to make sure that the project which requires investment is not a scam.

Few examples of such exchanges are:

The IEOs came into existence in 2019, and since then it has the tag of being a popular fundraising method.

Benefits of Initial Exchange Offering (IEO)

IEO Benefits
IEO Benefits?

The IEO offers the various benefits like:

i. Easy to access

The IEO is one of the easiest ways as it offers hassle-free participation without involving the on-chain transactions with different wallets available on different blockchain systems.

It’s just that the customer needs to have a single account and hence can participate via trusted web interfaces i.e. Exchanges.

The IEO is easy to use where the fundraiser need not worry about bringing the investors onto the platform. The effort put in is quite less and also the startups easily get the amount once the IEO gets over.

ii. Trustfulworthy 

IEO ( Initial Exchange Offering) is a trustworthy method. The exchange process puts forth its reputation on stakes behind the project on the platform.

The increasing cases of fraud in the ICOs led to the flourishing of IEOs as they offer more security where it is made sure that the fundraiser gets involved with a company that does not involve much in legalities and verification leading to wastage of time.

iii. Higher reach: 

The IEO has literally grown well. It offers millions of users base which has created a good and wide working network.

iv. Good management and list of tokens

When a giant like a Cryptocurrency Exchange launches a token it also takes care of the management and operations. This is beneficial for all as the investor’s funds are safe, the projects get their funds and the exchange gets its commission.

How to launch IEO- Initial Exchange Offering

The working and launching of the IEO follow a long process which is:

  • To have a prototype,
  • Build a Minimum Viable Product(MVP),
  • Connect with the best exchanges,
  • Go for checking the rules and regulations,
  • Craft a detailed white paper.
  • And finally, establish a clear fund goal and begin to form a list of tokens.

Therefore at last you need to focus on the promotion. Try promoting the IEO widely.

What are the problems with Initial Exchange Offering?

IEO Shortcomings
IEO Shortcomings

The risk in ICOs were increasing hence IEO came into play and it began to embrace. These IEO require launchpads and one of the very first launchpads was the Binance Launchpad.

It successfully raised a whopping amount of USD 7.2 million in just 15 minutes. This really brought a major change in the crypto world introducing the newest technique i.e. Initial Exchange Offering.

In spite of the above, there are inherent disadvantages of Initial Exchange Offerings like:

Loss of Essence of Decentralization

When we talk about cryptocurrencies we talk about DECENTRALIZED currencies. If a Centralized exchange manages even the launch of a cryptocurrency project what do you think happens to decentralization?

The Exchange controls all the aspects including decision-making of the trade right from inception.

Fees charged by Exchanges

Exchanges charge fees from both project developers and investors which in many cases can be exorbitant.

What is Initial DEX Offering (IDO)?

What is IDO
What is IDO?

This tool of fund-raising or crowdfunding is another method that came into existence in 2019 after the introduction of DEXs to the investment sector.

This tool allows the crypto projects to establish tokens or coins of their own but through DEXs. DEXs are ‘Decentralised exchanges’.

Moreover, IDO is a fool-proof way for companies to flourish and create new heights for themselves. 

It could be classified as the successor of the Initial Coin Offering and the Initial Exchange Offering

Talking about its birth and first launch, the Raven Protocol was one of the very first projects to launch an Initial DEX Offering.

Benefits of  Initial DEX Offering (IDO)?

IDO Benefits
IDO Benefits?

Being the most recent of the three, there are several benefits that users of IDO enjoy, these are:

  • The IDO requires or demands no permission. The fundraiser need not invest any money or pay any kind of fees for the tokens listed on the DEX.
  • Putting in a lot of effort. No wastage of time is seen as the tokens get available easily and quickly for the trading purpose and hence, the trade is hassle-free without putting much effort.
  • The hacking or breaching is not possible therefore it gives a safeguard from thefts or loss of assets. The investor has access to their wallets only.
  • It is quite safe as the IDO is not based on the few central authorities to build the decision of listing projects, rather it is a pool of the whole community. Moreover, it runs under the guidance of community governance.

How to launch an Initial DEX Offering (IDO)?

IDO is based on the DEX. DEXs are the immediate token liquidity provider and hence tend to offer rewards to the liquidity pool providers.

DEXs can operate without creating hiccups for the users.

In case of project launches, the investor gets a chance to start trading as soon as possible and even allows the early investors to go for selling the tokens early at high prices, and that too just after the IDO goes live. The advantage to this trading is that the one who comes early wins the chance to buy large amounts of tokens that too on discounts.

In order to assist you in launching the IDO, we mention the following steps:

  • Devise and plan a business strategy,
  • build marketing collateral followed by visiting a launchpad for DEX.
  • Thereafter, create your currency and
  • At last, you need to launch the token or coin and begin the process of raising funds as soon as possible.

What are the problems of Initial DEX Offering (IDO)?

IDO Shortcomings
IDO Shortcomings

The IDOs require a decentralized structure for the working but till now the mechanism does not have firm grounds as DEXs are still evolving. This hinders or might damage the project owners or the liquidity givers. Following are the problems associated with IDOs:

i. Errors in software

Because DEXs are new, often software errors like site crashing, data loss, etc. keep occurring. These problems discourage the project owners from collecting the funds just because the softwares they possess pose some problems. These problems also include:

  • theft of funds,
  • errors generated by integration with third-party apps,
  • improper working of the softwares etc.

ii. Pump and dump

The projects which issue the IDOs see a common problem in the process of trading which refers to pump and dump.

As the name suggests, investors get the tokens almost immediately. This could lead to a situation where some investors would tend to buy a heavy number of tokens which would result in high prices but at the same time they would sell those tokens off to gain high profits resulting in a drop in the prices unexpectedly.

iv. Stability in prices in uncertain

IDO has the advantage that it makes the tokens available immediately, but with being an advantage it poses problems and one such is the uncertainty in the prices. Sometimes the situation also arises where less opportunity is available for some investors as the swapping of tokens is quite quick and hence very few get the chance to invest at the listed prices.

Differences between ICO, IDO & IEO?

Differences between ICO IDO & IEO-Cover
Differences between ICO IDO & IEO

After diving deep into the three techniques it’s time to compare the three and figure out the differences between ICO, IDO, and IEO.

Definition

ICO: Initial Coin Offering is a fundraising tool whose total token supply is under the public independently.

IDO: Initial DEX Offering is the one where part of the total token supply is with the public but here it is via decentralised exchange launchpad.

IEO: Initial Exchange Offering is a fundraising tool where part of the whole token supply is sold to the public but here it is through a centralized exchange.

Fundraising

In the case of the Initial Coin Offering ICO, the project itself conducts the fundraising which is going to issue.

For the IEO, the Centralized Exchange tends to take the charge of conducting the fundraising.

However, for IDO the decentralized exchange takes the responsibility of conducting fundraising.

Listing tokens after the crowd sales

In the case of ICO, once the crowd sales project reaches out to different exchanges and the tokens appertain under the listing process.

For the IDOs and the IEOs, DEX & CEX automatically does the listing.

Process of vetting

ICO is kind of open and anyone can issue an ICO. Also, the projects on ICO are not vetted as they are launched by the projects themselves. The guarantee or trust factor is the public image of the project’s team.

The projects on IEO need to go through the vetting process before their listing on the CEX.

While for IDO, projects are vetted, and then they are to be aligned with the standards of the launchpad.

Marketing and promotion

The marketing strategy for the ICO issued by the projects follows spending a heavy amount on the promotions.

For IEO, the marketing is not the responsibility of the project, in fact, the crypto exchange does the promotion.

Marketing for the IDO is the responsibility of both the project as well as the launchpad.

Availability of token

ICO seems to be a bit slow as the tokens do not get available immediately to the investors and so they need to wait till any exchange listing comes.

While IEO also does not make the tokens available immediately for trading purposes.

In the case of IDO, tokens have the vesting period for availability or they are readily available as per the requirements.

Differences between ICO IDO & IEO in Tabular Form

ICOIDOIEO
DefinitionInitial Coin Offering is the tool where the total token supply is under the public independently.Total token supply is with the public but here it is via decentralized exchange launchpad.The whole token supply is through a centralised exchange which is better known as CEX.
PlatformsUsed by Ethereum, MasterCoinKucoin, Binance, Gate.io, Huobi GlobalFirestarter, BSCPad
FundraisingThe fundraising is conducted by the project itself.Fundraising is the responsibility of the decentralized exchange or IDO launchpadThe centralized Exchange tends to take the charge of conducting the fundraising.
Listing tokens after crowdsalesThe crowd sales project reaches out to different exchanges and the tokens are listed.The listing is done automatically on DEX.The listing is done automatically on CEX.
Process of vettingThe projects on ICO are not vetted.Projects are vetted (mostly by Third-Party Auditors), and then they are to be aligned with the standards of the launchpad.Projects go through the vetting process before it is listed on the CEX.
Marketing and promotionHeavy amount spent on the promotions.Responsibility of both the project as well as the launchpad.Marketing is not the responsibility of the project but done by the crypto exchange
Availability of tokensAre not available immediatelyTokens made available immediately as per the requirements.Are not available immediately
Table depicting the difference between ICO IDO & IEO

Conclusion

Fundraising is the most important aspect of Cryptocurrencies. Especially during this time when the competition is fierce. As the time progresses and the Crypto world evolves, more and more fundraising tools would be required.

Where initially ICOs looked like the most promising method to raise funds have now been overtaken by IDOs. ICO IDO & IEO each have their own set of advantages and disadvantages. Though IDOs seem like the most practical long-term fundraising solution it still needs development. With the industry evolving at an exponential rate, new and improved tools for fundraising will be introduced.

Accordingly, this article on the differences between ICO IDO & IEO may need an addition of those new tools for comparison with the passage of time.

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