Way back at the height of the cryptocurrency bull market in December 2017, Binance did something that may have changed the crowdfunding landscape forever. They launched the first ever Initial Exchange Offering (IEO).
It seemed insignificant at the time, given that the media outlets and traders were intently focused on Bitcoin Futures and ETFs, plus the parabolic price increases occurring throughout the market. But now that the dust has settled, it turns out that this small event had a ripple effect across the industry.
What happened was, Binance supported something similar to an Initial Coin Offering, but they did it through their exchange-affiliated platform. This platform, Binance Lauchpad, was used to facilitate a crowdfunding campaign for a project called GIFTO protocol.
The campaign was a big success, with GIFTO easily reaching their $30 million hard-cap on the first day and getting $6 million of that directly from Binance investors. Then, just a few days later, Bread launched the second unofficial IEO on Binance and raised $32 million in total, also with $6 million raised directly through Binance.
After those two successes, you might expect that IEO’s would have taken off straight away. In reality, though, the idea was mostly an afterthought throughout 2018. With the regulatory landscape for ICOs changing and the market declining by more than 90%, the time for experimentation would have to wait.
But something else important happened in 2018, which is that Binance grew into the biggest cryptocurrency exchange in the world, netting an astonishing $446 million in profits. As a result, the industry took notice when Binance announced that they would be holding a new token sale on Binance Launchpad each month of 2019.
Thus far, the Binance list of IEOs has three successful projects that have done their token-sale through Binance Launchpad in 2019, and all three were significant success stories: First was BitTorrent, who reached their $7.2 million hard-cap almost immediately. Then came Fetch.AI, who also successfully reached their hard cap of $6 million right away.
Most recently was Celer Network, who raised their hard cap of $4 million in just 17 minutes. However, Binance struggled to handle the massive interest from users in the sale, with technical difficulties preventing some 35,000 people from being able to buy CELR tokens before the hard cap was reached.
Crowdfunding is not nearly as easy for cryptocurrency projects in 2019 as it was at the peak of 2017. But you certainly wouldn’t know that by looking at recent IEOs, which have all sold out within minutes.
We’re starting to see IEOs growing in popularity similarly to ICOs in 2017, and the projects which can manage to qualify for an IEO are likely to raise money quickly and easily, as far as it looks now. However, there are more rigorous requirements for IEOs than ICOs, as we’ll discuss later in this article.
Before we get to that, though, we first need to answer the question: Why are IEOs so far performing so well? There are a few reasons we can point to here.
One is that having a token sale through an exchange makes it much easier for people to participate. Whereas investors in ICOs would have to go through an inconvenient KYC process and do their own research as to the details of the sale, exchanges can streamline that entire process and make it easy for anybody eligible to participate.
On top of that, exchanges can also provide a strong vote of confidence for any project they support: As Binance CEO Changpeng Zhao has stated, Binance has a rigorous evaluation process for selecting the projects that it will conduct an IEO. That dramatically reduces the risk that a project doing an IEO is a scam or incompetently managed, which makes it a safer investment choice.
Perhaps most importantly of all, IEOs have the advantage of guaranteeing immediate liquidity to any coin or token they support, since they will likely to get listed by the exchange.
In the past, getting exchanges’ support has been perhaps the most crucial thing that project teams have to accomplish leading up to and after their crowdfunding campaigns. Without exchange listings, investors quickly become restless and concerned about the status of their holdings. By already having the assurance of liquidity on a major exchange before the IEO even starts, investors can feel more confident in buying based on the other significant factors they take into consideration.
After seeing the success of Binance Launchpad, it was only a matter of time before other exchanges got in for the action. Indeed, numerous other exchanges have announced their plans to host IEOs beginning in 2019.
OKEx recently announced that they would be launching ‘OK Jumpstart,’ a compliant IEO platform that they’ve already finished developing.
Bittrex has gotten involved as well, with their first IEO initially slated for March 15th. However, the IEO was canceled the day before due to significant changes in the business status of the project in question, RAID. Still, we know for sure that Bittrex is on the lookout for more IEO opportunities.
Other notable exchanges who have joined the IEO trend include KuCoin (with KuCoin Spotlight), Huobi (with Huobi Prime), Probit, and CoinBene.
March 2019 has been an action-packed month for all of these exchanges, as none of them want to be left behind by missing this opportunity to provide extra value to their users by letting them fundraise their favorite projects and the greater cryptocurrency ecosystem. With all of them competing to support the best projects, this is as exciting a time as ever for young cryptocurrency projects looking to launch token sales.
For any young project in the blockchain industry, IEOs provide an appealing alternative to traditional ICOs. After all, getting listed on an exchange soon after an ICO concludes is a very important and hard step for any project, so why not get that taken care of beforehand? Add to that the fact that exchanges want to see their IEOs succeed and can help with marketing and other essential steps in the process, and it’s clear that IEOs have some major benefits relative to ICOs.
I decided to publish this article to outline some of the critical points projects need to consider before attempting to partner with an exchange. After studying all of the early IEO success stories and having conversations with many of the exchanges that are launching IEO platforms to understand what they are looking for, I converged on the following factors that will be critical for any project that hopes to collaborate with an exchange for conducting an IEO:
Solid business model: The reality is that many ICOs have no business crowdfunding from knowledgeable and discerning investors. If the exchanges don’t see a clear path to success for a project, including a solid product/market fit, they won’t want to associate themselves with it and deal with the future blowback from their users when the project performs poorly.
Development underway or already have a working product: Looking at Binance’s IEOs, one of the things that stands out is that the projects had already made substantial progress on their products. For example, BitTorrent was already being used by 100M+ people before their IEO, while Bread had a functional and well-designed app with existing users before theirs. It isn’t necessary to be that far along, as others like Celer had only an MVP at the time of the sale and Fetch was still 9-12 months away from their Mainnet launch. But some noteworthy development work should have already started before approaching an exchange.
Proper documentation and token economics: It’s essential for any project looking for investors to have a clean website and detailed documentation (e.g., whitepapers, technical papers, token economic analysis, etc.) on how the project can succeed and why the associated token will increase in value.
A large and active community: It goes without saying, but any exchange isn’t likely to support an IEO project if the project hasn’t been able to generate substantial public interest and engagement already.
The benefit of hosting IEOs for exchanges is that it can attract new users to their platforms, as was the case with BREAD and BitTorrent’s large communities coming to join Binance. Celer and Fetch also had 10K and 30K users in their communities, which should be enough to appeal to exchanges.
Reputable team and advisers: Projects with an under-qualified founding team, and no real team to speak of will be immediately dismissed by exchanges. Also, consider that the more technically complex a project is, the more critical it is to have an experienced and proven development team. Additionally, having a few advisers can boost your chances as they show that industry experts see promise in your project.
PR and social media: Strong public relations begins with getting your project seen by as many investors and traders as possible. Publishing PR on leading fin-tech and crypto publications can also be a good bang for your buck and help expose you to new audiences. In total, you want to have 50+ publications leading up to your token sale.
Utility token: Security token offerings are a growing trend in their own right, but they are far more legally complicated than utility tokens, and major exchanges don’t yet support trading of security tokens. If you want to hold an IEO, the only way to do it at the present moment is to have a utility token.
In addition to the above keys, it’s also essential to have an independent legal consultant to make sure there won’t be any issues with regulations down the line. As it seems now, we advise setting a hard cap particularly for IEO around $6 – 7 million, as going much higher than that significantly hinders your chances of being considered by an exchange.
Still, we want to caution against being dependent on getting accepted by exchange if you’re planning to crowdfund. Even if you meet the requirements described above, there’s always a subjective factor involved in these decisions that you can’t control.
As the saying goes, “Hope for the best, but prepare for the worst.” Whether or not you do partner with an exchange to IEO or not, it’s important to keep working on community engagement as well as exchange listings and the other activities that you would focus on as a traditional ICO.
* The article was written by Artur Boytsov, Vice President Marketing and Business Development at Priority Token
