What is IEO? IEO Investment Guide for Newbies (2022)
What is IEO? How should newcomers invest in IEOs? What is the difference between IEO and ICO, IDO? Find out all right here!
IEO is one of the oldest forms of crypto funding. Although it is no longer as hot as before, IEOs also play an important role in the current market situation. In this article, idolmeta.net will help you understand:
- What is IEO?
- Advantages and disadvantages of IEO compared to other forms of funding such as ICO or IDO.
- Why does IEO still have an important role while the world is following IDO?
- Risks & effective IEO investment strategies.
What is IEO?
IEO stands for Initial Exchange Offering, a form of crowdfunding through an offering of tokens on Crypto exchanges.
Theoretically, tokens offered for IEO on exchange A may or may not be listed on exchange A after the sale is complete. However, in most of the cases that I observe, the token that is sold IEO on any exchange will usually be listed on that exchange.
That is also the reason why projects that sell IEOs on Binance LaunchPad are highly anticipated. Simply because everyone expects that every coin listed on Binance will “pump”.
IEO investment steps for newbies
The IEO investment process is presented simply as follows:
Step 1: Check project information
You need to check the most basic information about the project, which is what the project is about, who is behind the project, how reputable is it, etc.
Even more deeply, it is the study of the project’s potential, such as predicting ROI achieved, whether to hold long-term or not, etc.
Step 2: Research the exchange holding IEO
The brokers will have different ways of playing, as well as different accepted currencies. In addition, it is essential to consider the reputation of the exchange, as well as how previous projects have performed IEOs.
Step 3: Register an account, perform KYC
KYC (Know Your Customer) is the process of collecting identifying information related to the customer of a certain service. The basic information that is usually collected is a portrait photo, identity card number, passport, address, etc.
The purpose of the KYC process is to remove unqualified people from using a service. With different units, these standards may be different.
Thus, you can see the importance of KYC and this is almost a must when you want to participate in IEO at any exchange. And if you do not participate in IEO, you should also KYC if you want to trade, deposit and withdraw at great value.
Step 4: Check Cryptocurrencies Used in IEO
Usually, the exchange token will be the currency for that exchange’s IEO. A case in point is that Binance Launchpad will use BNB, but can also use Stablecoins like USDC, USDT as currency.
Step 5: Buy IEO if you win
If you are lucky enough to win an IEO, you can follow the instructions of the exchange to buy project tokens. Then, depending on the playing strategy, sell or keep.
Difference between IEO and ICO, IDO
IEOs and ICOs
ICO (Initial Coin Offering) is a form of crowdfunding, in which investors will give the project a sum of money, in return, the project will send back to investors a corresponding amount of coins in exchange rate. pre-determined price.
The only difference between an IEO and an ICO is in the appearance of a third intermediary – the exchange.
- With the ICO model, you will have to work directly with the owners of those projects. This means that the entire process of KYC/AML and token purchase will be without intermediaries, but directly dealing with the project.
- As for IEOs, instead of working directly with the project, exchanges will act as an intermediary for both parties: investors and projects.
To participate in buying IEO tokens, you will need to open a trading account on that exchange. Complete the KYC/AML verification steps, prepare BTC/ETH/USDT inside that account and wait for the sale date to buy..
IEO and IDO
IDO (Initial DEX Offering) is a form of fundraising through the offering of tokens on decentralized AMM platforms. IDOs will usually have 2 pools, one for the community, and the other for users holding platform tokens (POLS, DAO, …).
If the difference between an IEO and an ICO is in the presence or absence of a middleman, for an IDO it is the difference between a middleman:
- For the IEO, we will be playing a “game” on a centralized exchange (CEX).
- For IDO, we will be playing on a decentralized exchange (DEX) as the name suggests: Initial DEX Offering.
But anyway, a similar point of IEO and IDO is to use the token of the exchange/IDO platform to participate in buying tokens. The current popular IDO platforms are: Polkastarter, DAO Maker, CardStarter, Solanium, …
Another difference is that it is much easier to open a token sale through an IDO than an IEO. That’s why 2021 is the year of IDO with dozens of projects hosting IDO every week on various decentralized fundraising platforms.
Here is a table comparing IEO, ICO and IDO:
Advantages of IEO compared to ICO, IDO
Advantages of IEO with ICO
Safety and focus for investors:
- Với IEO, sàn giao dịch trở thành tổ chức trung gian để hỗ trợ việc mua bán token giữa nhà đầu tư và các dự án.
- On the investor side, they will also feel more secure when there are some projects proposed by the exchange, instead of having to research by themselves, which takes a lot of time and effort.
Increasing the number of new users with high volume for exchanges:
- Khi thực hiện IEO, các sàn giao dịch sẽ thu hút được lượng người dùng lớn. Đây xem như là một hình thức marketing giúp tiết kiệm chi phí nhưng cũng là 1 con dao 2 lưỡi.
- If the IEO is successful, the project will bring profits to investors. Besides, the exchange increases the reputation and revenue from users’ trading activities. However, if the IEO fails, the reputation of the exchange will also be greatly affected.
- In the context of very fierce competition on the floor and constantly offering attractive programs. At this time, users will move to use exchanges that bring more benefits to them.
- It is this competitive factor that will help exchanges become much more serious in the process of reviewing potential projects with high probability of success.
Reduce costs for token sale activities, marketing costs for projects:
- Về phía chủ các dự án, họ sẽ có thêm một mô hình huy động vốn mới, tập trung hơn nhiều so với ICO.
- Working on projects, most of the team members are usually programmers. Very few people on the team have marketing knowledge. Especially for specific activities such as token sale. When organizing IEO successfully, projects save a lot of costs for Marketing.
- At the same time, you also save the cost of listing on exchanges, and also see more new investors, more confident in the project.
Advantages of IEO with IDO
IDO was born for the purpose of building a more decentralized fundraising process, so it is quite easy for projects to register for an IDO slot. Therefore, there will be many scam projects, only pump dumps to get money from players.
This inadvertently makes the IEO in 2021 interesting due to the guarantee from top-tier exchanges like Binance or FTX. Not too many projects can go through the censorship of CEX exchanges to get capital, so when there is news about IEO, it also helps the marketing of the exchange and the fundraising project significantly more effective.
Only 3 projects can be listed on Binance Launchpad in 2021
In addition, the fact that dozens of projects launch IDO every week also makes players feel like “overwhelming”. At this point, IEOs are small but high-quality items that will increase attention from the community.
So is investing in IEO any risk? The answer is yes.
Risks when investing IEO
IEO is an investment model, it is not perfect and there are many risks for the parties involved. For your convenience, I will classify risks by group as follows:
Risks for investors
No one dares to confirm that buying an IEO will make a profit after the listing of the exchange, so sometimes you may still suffer a loss, or the profit achieved is not worth the money spent.
The current FTT price is around $50. To participate in FTX’s IEO, you need to Stake at least 150 FTT, equivalent to about $7,500 – not a small number.
But you don’t have to participate to win, so if you Stake 150 FTT in exchange for the opportunity to buy IEO on FTX, it will take you 15 days to Unstake after that. Assuming during this time FTT dump, then you have suffered a very heavy loss.
In addition, the project’s IEO funding does not mean that the product has been completed. If after the token is listed on the exchange, the project still does not complete the product, does not attract more users and new buyers of the token on the exchange, the possibility of a price dump in the long term is very large.
Risks for the project
IEOs can be an effective fundraising tool, a good brand leverage. However, when participating in IEOs, projects will sometimes have to pay a pretty expensive price, which is the right to “partially control” the project!
Performing an IEO means that the exchange can decide the price of your token. The exchange can also decide when the token is listed, even control the price of the project’s token.
Besides, the direct IEO on the exchange will make the power concentrated on the exchanges. With this power, it is certain that the price that floors collect from projects will not be small. If the IEO fails, it is inevitable that the project will face a lot of financial problems.
Risks for the exchange
On the exchange side, the risk usually comes from the projects themselves. If the scam project fails, the IEO will not only cause damage to investors, but the exchanges will also lose their credibility in the market.
Criteria for choosing an IEO broker
Here are 4 criteria that you can use to choose the best IEO brokers for you:
The first priority when you choose an exchange to buy an IEO is to choose a reputable exchange. Because prestige comes with a level of safety for investors.
The exchanges themselves are the party that organizes the IEO. Exchanges wouldn’t want to risk their long-term reputation in the market. Therefore, they will carefully select and check projects before allowing the project to carry out IEO.
Community, users & high trading volume
You will be surprised to see that the volume number you are viewing on CoinGecko or CoinMarketCap daily will include a lot of fake volume. The volume number is actually quite different.
Importantly, you will realize that in the market there are not many exchanges with real trading volume. Therefore we will need to be careful with exchanges with virtual volumes.
Advice for brothers: It is best not to buy IEOs on these exchanges because the ability of the exchange to manipulate prices is very high.
Good project selectivity
The ultimate goal of buying an IEO is to invest in a project promoted by exchanges. Therefore, how the floor chooses a project will also greatly affect our investment results.
Choosing a good project will make the exchange’s IEO and the project’s chances of success higher in both the short and long term. The IEO is just the initial launch pad. Long-term success or not still depends on the internal resources and application of that project.
Exchange Coins Have Well-Designed Tokenomics
Almost all exchanges today also issue their own tokens. Binance has BNB, Huobi has HT,… And in IEO exchanges will use their tokens as a necessary condition to buy IEOs. Therefore, after the IEO ends, if the tokenenomics of the token is not well set, there is no Use Case, the exchange token will be dumped immediately.
Besides, you should also pay attention to exchanges with tokens in the form of Transaction Mining. These types of exchanges, you should consider more before joining.
To evaluate how good tokenomics design is, you can refer to Coin98’s detailed Tokenomics article right below.
In addition to the criteria for choosing an exchange to participate in IEO. You should also take the time to research and make your own judgment about the project you want to invest in.
Safe and effective IEO investment strategy
In IEO, there are 2 ways for you to participate in investment
- Option 1: Invest in exchange tokens.
- Option 2: Invest directly in IEO projects.
The following is the strategy that idolmeta.net applies to each specific case as follows:
Invest in the tokens of the exchanges that are open to sell IEO
Going back to the years 2018 – 2019, exchange tokens have very small capitalization, so you can apply the strategy of buying first, or closest when the IEO news is released. Because then:
The community will buy tokens to play the IEO, causing the price to go up.
Those who follow the news will also buy.
Combining these 2 things will cause the token price to increase.
But from 2021 onwards, the tokens have a fairly high capitalization: BNB has a capitalization of $50B, FTT has a capitalization of $17B, OKB has a capitalization of $4.5B, and so on.
Therefore, it is impossible to increase the price by 50% after just one IEO message, resulting in a low profit of buying Spot. From there, we can only execute a reasonable long-leverage strategy to eat short. This approach is also quite risky, because… playing with the lever is never safe.
Learn: What is Leverage? The secret to making money from leverage
Invest in tokens of projects funded by IEO
There will be two types of people here: Lucky to win the IEO ticket, and not to win.
For those who won IEO tickets, they can consider releasing less to breakeven after listing the floor, then can hold until they reach the desired target. Because at that time, our mentality is to play on profits, so it will be easier to make profits. And if you are confident in fundamental analysis, it is not a bad idea to hold it all.
As for the unlucky brothers, we can still wait to buy in the market after the IEO winner discharges the goods. One thing to keep in mind is that the fact that you do not win an IEO is not necessarily a bad thing, on the contrary, sometimes you can still collect goods at a better price.
Such was the case with LUNA with an IEO of $0.8, then dumped to nearly $0.1, which is almost 8 times. If you collect at $0.1 and hold until now, that means you have a profit x 350 times, much better than the IEO price.
Another example would be BAND with IEO price of $0.47, and Seed Sale price of $0.3. But at one point, BAND touched $ 0.2, which is lower than the Seed Sale. If you are lucky enough to buy BAND at $0.2, the ATH ROI so far (~$23) is about x 115 times.
Experiencing many ups and downs or having new forms of fundraising, IEOs have always had a place in the market because of the interesting features I mentioned in the article.
What do you guys think about IEO, is there a fundraising model that can completely “knock-out” IEO in the future? Leave a comment below to discuss with Idolmeta.net !