As everyday individuals working hard to make a living, you might not have vast assets to sway the markets, but you likely still want to use the resources at your disposal to participate and become a small force for change in the world. This is not only an investment but also a form of self-realization. One way to get involved is through fundraising.
In the cryptocurrency market, there is a fundraising method that allows for "early market participation" and has become very popular among crypto investors since its introduction: the Initial Exchange Offering (IEO). This article explains what an IEO is, delves into the history of the first IEO platform—Binance's Launchpad—and explores how retail investors can participate.
Why Did IEOs Emerge? A Comparison of Fundraising Methods
An Initial Exchange Offering (IEO) is, as the name suggests, similar to the traditional financial concept of an Initial Public Offering (IPO). However, an IEO is a fundraising campaign conducted on a cryptocurrency exchange. The very first IEO was launched in 2019 by Binance's Launchpad, ushering in a new era of fundraising.
To understand the context in which IEOs emerged, we need to go back to the Initial Coin Offering (ICO) boom of 2017. During that time, substantial funds flowed into the blockchain industry, but numerous fraud cases also occurred.
You might be wondering: What are the differences between an IPO, ICO, and IEO? What was the ICO boom? Why were there so many scams associated with ICOs? And how are these events connected? Let's break it down step by step.
The Differences Between IPO, ICO, and IEO
Unlike an IPO, where companies issue stocks, an ICO involves issuing cryptocurrencies as a means to raise funds. ICOs are typically conducted by Web3 public chains, project teams, and other organizations that use cryptocurrencies as their medium of exchange. In simple terms, the difference lies in the issuing entity and the fundraising medium.
The most famous ICO project is undoubtedly Ethereum, which raised over 30,000 Bitcoins in 2014 and is now a leading public chain.
An IEO is similar to an ICO in that both use cryptocurrencies for fundraising. The key difference is the "venue where the transaction occurs." While ICOs usually take place on the project's own platform, the "Exchange" in IEO signifies that the fundraising is conducted through an exchange.
The ICO Boom Turned into the ICO Chaos
As mentioned, the most famous ICO was Ethereum's public fundraising. The industry followed Ethereum's lead, and ICOs became a popular fundraising method. The ICO boom peaked in the second half of 2017, with over 800 projects launching ICOs that year.
However, since ICOs involve trading "tokens" issued by projects—emphasizing the "functionality" of the soon-to-be-released cryptocurrency—rather than selling shares that represent ownership in a company, they are not considered securities. Consequently, these various coins were not subject to various countries' Securities Exchange Acts.
With the public seeing significant business opportunities and investing heavily, yet lacking regulatory protection, the subsequent "ICO chaos" ensued. Many cryptocurrencies were issued without substantial utility, or project teams operated with low transparency, making it difficult for investors to assess risks and progress. This environment led to rampant fraud.
Was the Birth of IEOs Driven by the Need for "More Security"?
As briefly explained above, the primary difference between an IEO and an ICO is the "trading venue." This difference stems from the market's reflection on the "ICO chaos": "If there is a lack of supervision between the project team and investors in an ICO, what if a third party could fulfill this role?" Thus, the first IEO was launched in 2019 by Binance, the world's largest cryptocurrency exchange, through its "Launchpad" feature.
Moving ICOs to exchanges benefits both parties. For exchanges, fundraising attracts capital, and more capital means more transactions. For investors, projects listed on exchanges are often those in which the exchange has invested or has high hopes for their development.
Additionally, IEO subscriptions typically allow users to participate using the exchange's native token. To encourage better price performance of their platform token and stimulate more active investment, exchanges generally subject projects to rigorous scrutiny and evaluation.
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Preparations for Participating in Binance Launchpad
Since the first historical IEO project occurred on Binance Launchpad, we will use it as our example to outline the simple steps for beginners to participate in an IEO (using the desktop interface for illustration).
Register with Binance
Currently, several well-known trading platforms, such as OKX and Bybit, offer registration via email and phone number. Binance is no exception and even provides Apple ID registration, making it quite friendly for newcomers who have never dealt with cryptocurrencies.
Remember, successful registration is just the first step. Because Binance is a cryptocurrency exchange, you must complete KYC verification (Know Your Customer) to prevent fake accounts and money laundering. Only after passing KYC can users fully access all the exchange's services.
Purchase the Platform Token
To participate in the issuance of new tokens, you usually need to use the exchange's native token for subscription. In Binance's case, this means holding "BNB." There are several ways to buy crypto on Binance: using a debit/credit card, Google Pay/Apple Pay, C2C trading, or third-party payment services.
As a beginner, you can enter the "Buy Crypto" page to purchase BNB using a debit or credit card. However, note that not all bank cards are supported, and each method has different nuances or fees. It's advisable to understand each option before deciding which is the most cost-effective and convenient for you.
Binance also provides detailed instructions on how to buy BNB. Those interested in learning more can refer to the official guide.
Navigate to the Launchpad Page
Once you have BNB, click on "More" in the top menu options. You will see "Launchpad & Launchpool." Although there might not be any active Launchpad projects at the time of reading, you can still click to learn more. Explore what project information is available on the page, how to conduct research, and which projects have successfully raised funds through IEOs over the years.
Participate in the IEO
Participating in an IEO on Binance involves several key stages: BNB holding calculation, subscription period, calculation cycle, and final distribution.
The process for investors is as follows: participate in the project IEO → the platform calculates the user's BNB holdings → subscribe to the new project tokens → final token distribution.
During the subscription period, note that the amount of new tokens a user can subscribe to depends on the "average daily holding amount" of BNB during the days from the start of the Launchpad calculation activity until before the subscription period (for example, from July 11 to July 17 before 14:00 for the ARKHAM project). Therefore, do not wait until just before the subscription starts to buy BNB—it will be too late!
After all these explanations, you might still only have a partial understanding of how IEOs work. But for everyday investors, the most important thing is knowing how to participate. "Hands-on experience" is often more valuable than knowledge alone.
Nowadays, with many major exchanges rising to prominence, the names of various IEO platforms might differ. These can be covered in separate articles. However, there's no need to feel anxious about having to learn everything at once before participating. Maintain a healthy mindset towards cryptocurrency investment—DYOR (Do Your Own Research). When faced with unfamiliar blockchain and cryptocurrency knowledge, embrace the spirit of "Stay Hungry, Stay Foolish"!
Frequently Asked Questions
What exactly is an IEO?
An Initial Exchange Offering (IEO) is a fundraising event conducted on a cryptocurrency exchange where new tokens are sold to investors. The exchange acts as a trusted intermediary, vetting projects and facilitating the token sale, which helps reduce the risk of fraud compared to initial coin offerings (ICOs).
How is an IEO different from an ICO?
The key difference lies in the platform. ICOs are typically conducted directly by the project on their own website, while IEOs are hosted and managed by a cryptocurrency exchange. This provides an additional layer of security and due diligence for investors.
Do I need to hold the exchange's native token to participate?
In most cases, yes. For example, to participate in a Binance Launchpad IEO, you generally need to hold and use Binance Coin (BNB) for the subscription process. The amount you can subscribe to is often based on the average amount of the platform token you hold over a specific snapshot period.
What are the risks of participating in an IEO?
While IEOs are generally considered safer than ICOs due to exchange vetting, risks remain. The new token's price can be volatile after launch, and project success is never guaranteed. Always conduct thorough research (DYOR) on the project itself before committing funds.
Can I sell the tokens I get from an IEO immediately?
Usually, yes. Once the tokens are distributed to your exchange wallet, they are typically available for trading immediately on the hosting exchange's spot market. However, some projects might have vesting schedules or lock-up periods for certain tiers of investors.
Are IEOs available to users in all countries?
No. Participation in specific IEOs is subject to the terms and conditions of the exchange and local regulations. Some countries or regions may have restrictions that prevent users from taking part in token sales. Always check your eligibility based on your location.