A short guide on how IDO and IEO work

Do you want to learn more about smart ways of the traditional ICO held on the diverse cryptocurrency exchanges and how they work? In this short guide, you will dive into the exciting world of IDO and IEO: find out the main difference between them and why they are becoming increasingly popular among exchange users.

What is IEO?

IEO, or an initial exchange offering, is a way of raising funds used by crypto startups by selling tokens or coins through a cryptocurrency exchange platform. In other words, crypto exchanges help oversee the token sale by completing the project vetting process, which means checking crypto projects for a scam in different aspects. Therefore, participating in the IEO/IDO on a reliable crypto exchange is much safer than participating in the ICO. 

Primarily, the IEO was held in January 2019, when Binance, one of the most popular crypto exchanges, launched the BitTorrent Token (BTT). IEO took 15 minutes and raised more than $7.1 million.

Source: BitTorrent

The IEO has become popular because of participation mechanics. Instead of processing on-chain transactions across multiple blockchains and wallets, the IEO allows users to assess the project’s reliability and participate in funds exchange. On the other hand, project developers can present their projects to the crypto exchange’s user base without spending much on promotion and marketing strategy development. Therefore, the IEO is a win-win event for both investors and owners of crypto projects.

How does IEO work?

Crypto startups raise funds by working directly with a cryptocurrency exchange platform to launch a token sale and arouse interest among investors. The key particularity of the IEO process is the huge amount of audit jobs before launching sales to provide participants of the IEO with high safety and reliability. Thus, investors can get confident that this crypto project will provide them with a future profit and won’t become a scam.

In the crypto world, you can meet the launchpad concept. This is a platform that helps crypto startups do fundraising for further development and launch. The IEO rules and processes vary on different platforms. However, the IEO process usually includes the following stages:

• White paper development. In the white paper created by the crypto startup, investors can find the tokenomics of the crypto project (the explanation of the factors that impact a token’s use and value) and the payment platform providing transactions with this cryptocurrency. The white paper of the crypto project provides liquidity on the crypto market and explains to investors the value of the cryptocurrency that is expected after its release and IEO.
• Project submission: The crypto project registers with the exchange chosen for their IEO to signal their interest in offering tokens through that platform.
• Security and legitimacy. The law regulating the launching and holding of the IEO can be different according to the IEO platform and the country where it’s registered. For instance, since IEOs don’t offer an investment interest in the company, the U.S. Securities and Exchange Commission (SEC) doesn’t regulate IEO investments, which makes producing and selling IEO tokens easy. Therefore, the investor doesn’t pay any fees for participation in IEOs.
• Announcement of the IEO launch. After verification is completed, the exchange posts a notice about the token sale. The crypto startup launching the IEO will also typically list tokens on the exchange to publicize their availability.

Source: Official P2B IEO page

Benefits of IEO over ICO

• Public offering approach. ICOs allow anyone to buy tokens. However, IEOs require the registration of the participants on the crypto exchange. Unverified users can’t participate in the IEOs. 
• Fast listing. IEOs usually list tokens on the exchange much faster than ICOs which can take several months from announcement to the event itself. Sometimes, investors don’t have enough patience to wait for the ICO launch, while this process takes much less time with IEO on the crypto exchanges.
• Affordability. Anyone can participate in the IEO, while ICOs can sometimes be available only to a group of people.
• Profit. Investors can purchase tokens at the initial starting price of the project and earn profits up to thousand of %.
• Information about the crypto project. Investors don’t need to search for information about crypto projects since crypto exchanges offer extensive information about these projects on their websites.

IEOs have become more popular than ICOs mainly because of two reasons. First, many investors prefer IEO tokens over ICO tokens because of the deep investigation and examination of the crypto project and tokens before their listing. This significantly reduces undue risk and makes IEO participation more secure and attractive for investors.

And second, cryptocurrency exchanges are interested in extending the audience for their platforms offering IEOs. For example, the P2B exchange is specialized in the listing of crypto startups and launching new tokens—these events are happening here all the time.

What is IDO?

IDO, the initial DEX offering, is a crypto project’s launch on the decentralized liquidity exchange or centralized exchanges that can technically hold IDO. This type of token launch provides businesses with a tool for engaging their communities in the economy of the crypto project, boosting their products and services on the market, and enhancing their liquidity. 

Projects issue IDO services to allow individual investors to finance them. Unlike IPO (Initial Public Offering), investors never obtain any equity in the project. 

Compared to ICOs, IDOs offer some benefits:

• Instant liquidity and trading, ensuring the projects’ success and market activity.
• Stability. A higher level of stability because investors don’t get all the tokens at once due to the reduced sale size.
• Affordability. The amount of staking necessary to join the IDO is lower than ICOs while providing less risk of being dominated by private investors from the launch of a project.
• Transparency. IDOs take a step further with DeFi since choosing a promising initiative and launching the offering tokens are no longer centralized and controlled by one institution or group of people. Anyone can access the process data, and there is entire transparency.
• High security and reliability. Besides the security provided by the DeFi transparency, IDO launchpads require KYC and AML verification from issuers to ensure that all the enlisted projects are legitimate.
• Lower costs and faster profits. While launching an IDO, a crypto startup just pays fees to process transactions on the exchange. 

Source: Official P2B IDO page

IDO is very similar to initial exchange offerings (IEOs), where crypto projects launch their token and raise funds via a centralized exchange since both enable immediate trading on top of raising funds.

IDOs offer a more beneficial token sale and listing model. First, an IDO offers quick liquidity with little to no slippage through available liquidity pools in a DEX. Slippage means a difference between the expected price of a token trade and the price at which it is actually executed. Many crypto exchanges offer IDO services, including Binance DEX, Polkastarter, and Uniswap. 

Source: CoinMarketCap

When the IDO is finished, a digital token is included in a trading list while allowing investors to earn money on their investments. Regarding the bright examples of IDOs, we can mention the RAVEN project, placed on Binance DEX in June 2019, raising over $500,000. This was the first IDO held by the crypto startup that caused the revolution in the crypto world and significantly changed the principles of the tokens offering.

Participate in IEO, and IDO

IEO and IDO have become more popular than standard ICOs thanks to the wide range of benefits. They include the deep investigation and examination of the crypto project and tokens before their listing, liquidity services, a high level of popularity of the crypto project, faster listing procedure, and a higher level of security for both creators of the crypto project and participants in IEO or IDO.