What is Initial Exchange Offering - the latest trend in cryptocurrency?

Cryptocurrency exchange Bitfinex earlier launched its first token, Ampleforth (AMPL), on its Initial Exchange Offering (IEO) platform, Tokinex. The sale is scheduled to start on June 13 and end when it reaches the hard cap of $4.9 million.

Bitfinex, however, is not the first one to get into this new foray in cryptocurrency. OKEx, Binance and Bittrex are already in the IEO business.

Those who may be confusing IEO with Initial Coin Offering (ICO) must know that these two are different. According to experts, IEO is getting increasingly popular because it has many more advantages than its counterpart.

What is an Initial Exchange Offering?

First of all, IEO is a form of ICO; some call it a better version of it. Unlike ICO which anyone with a crypto-wallet can avail, IEOs are exchange-specific. This means you need to be a user of the exchange that is offering it and buy the token using your account in the exchange.

ICO vs IEO

It’d be difficult to declare a winner in the battle between an ICO and an IEO. Some prefer ICOs because it is open to public. On paper, it has more chances of raising funds. However, investors have started being skeptic about ICOs; there are reasons for that.

Anyone who can convince investors with their white paper can raise money through ICOs. More often than not, the technology involved in the business is unknown. Also, no third party monitors ICOs. Scammers have used this opportunity in the past to collect funds and not deliver what is promised.

What works for IEOs is that the exchange which launches it monitors the process as an administrator. If an investor trusts the exchange, they can be assured of the security of its IEO. This also means the reputation of the exchange is at stake. In case the IEO goes down, it is likely to take the exchange down south with it.

IEOs – Pros and Cons

The sense of risk is much lower in IEOs, and that may be reason enough to attract more investors. Reputed exchanges have their own research and verification process to make sure that the token is legit. Users should be more confident while buying IEO tokens because they do not have to trust a half-known startup but to rely on the exchange that is far more reputed.

Nevertheless, like any other investment option, IEOs too have their limitations and risks. The biggest question is if you should trust an exchange. Even though there are numerous cryptocurrency exchanges around, very few of them can be trusted. Most of them are often accused of poor security and management.

Also, various blockchain experts are against IEOs simply because it is against the core value of the technology: decentralisation. When an exchange oversees the process, it simply controls the revenue flow while blockchain and cryptocurrency are fundamentally against any form of third-party control.