A new cryptocurrency funding tool has made its way into the digital asset space.
What Is an IEO?
Known as an initial exchange offering (IEO), the new system is designed to relieve the crypto arena of the now dreaded initial coin offering (ICO), which has seemingly caused several problems for both investors and businesses alike.
At one time, ICOs were considered the most popular (and most prominent) crypto-funding tools within the industry. An ICO worked when a new business or startup sought capital from investors and performed a simple “trade” of sorts. The investor would give his or her money to the venture in exchange for access to the company’s new cryptocurrency, which they could then use to purchase the business’ services and products.
The system worked wonders at first, but eventually, the ICO began getting dismissed as a fraudulent venture. Many businesses either disappeared when they couldn’t raise the funds they needed, or were flat-out phony, and utilized the ICO method of garnering capital to rip-off any unassuming investors they could find. In both cases, the people putting their money into these businesses became the ultimate victims. The startups disappeared with their cash, while the investors were stuck with fewer funds and a coin that was virtually useless to them.
It is estimated that over $500 million has been lost to fraudulent or phony ICOs.
An IEO works by combining both a token sale and an exchange listing into one event. Thus, if you buy into an IEO, you can expect to begin trading the currency right away. This is very different from an ICO, where you must buy into the coin and then wait weeks or months for the coin to potentially become successful enough to trade.
There appears to be more legitimacy, here. The main problem is that many exchanges that list these new coins either do not or are not required to perform “due diligence” regarding the coins. In other words, they don’t necessarily check the legitimacy of the companies selling them. Thus, investors still need to be very careful when considering which ventures deserve their money.
Investors: Beware!
In addition, many IEO whitepapers suggest that the listings of coins do not necessarily reflect endorsements, so investors still need to be concerned regarding the legitimacy of the coins they examine.
It is disappointing to see so much rigamarole in the cryptocurrency space revolving around fraudulent activity. Recently, a report emerged from cybersecurity firm Cipher Trace claiming that approximately $1.2 billion had been lost to fraudulent crypto projects in just the first three months of 2019. This is just shy of the $1.8 billion that had been lost throughout all of 2018, suggesting that fraudulent ventures are becoming an even larger problem as time goes by.