The traditional method of raising funds through ICOs are undoubtedly becoming less and less attractive. In fact, there has been a steady decline in funds raised through traditional ICOs since March ’18 - the numbers don’t lie.
This dramatic decline in retail interest in ICOs have forced projects to adapt and remodel their fundraising techniques in various ways. There are a handful of trends that our ICO Specialists at Lunar Digital Assets have taken note of:
However, there is a new form of “ICO” that’s taken the market by storm - IEOs. And surprisingly, they are doing extremely well.
IEOs, or “Initial Exchange Offerings,” are not exactly a brand spankin’ new concept; in fact, they’ve been around for well over a year now. In essence, IEOs are a way for projects to raise funds by giving exchanges exclusivity to sell their tokens, and in many cases, start trading very shortly after.
Although IEOs usually have a significantly smaller cap than the traditional ICOs that we are all familiar with, they may have multiple rounds that sell out quickly. And when I say quick, I mean quick. Whereas ICOs raise periods are now averaging over 3 months, IEOs tend to sell out in minutes, hours, or even seconds as we have seen with LINIX, a Korean-based project that boasts to be the “World’s First DAG Infused Blockchain.” Their website claims to have infinite TPS scalability, near-instant confirmation, and robust security through a new consensus algorithm, Proof of Checks and Balances (PoCB).
IEOs are increasingly becoming more popular and attractive for retail investors. There is no need to wait 6 to 12 months to receive your tokens, let alone be able to transfer them as you wish. ICO smart contracts have become more and more sophisticated with lockup periods, token freezes, vesting schedules, etc. The uncertainty of market conditions down the line is a major concern, as well as uncertain exchange listings. With IEOs, two of the most biggest concerns for retail investors are solved right off the bat. They know exactly when the token will start trading, and where it will be trading.
Binance Launchpad is obviously the most coveted exchange for a project to launch their token on; however, that was not always the case. In December 2017, Binance launched tokens for the GIFTO Protocol (GTO) and Bread (BRD), with both selling out in impressive times: ETH session was completed in 98 seconds, and the BNB session in 131 seconds for GIFTO, and 116 seconds and 216 seconds for Bread.
Both tokens initially began to trade its way up to roughly 5 to 10x its IEO value, but actually ended up trading less than its initial value just weeks after the launch. By late 2017 - early 2018 standards, they were seen as failures. We have to put ourselves back in that time period to understand; it wasn’t uncommon for ICOs to be doing 10–100X and holding its value (of course, during the bear market that followed they too have lost their value). Unsurprisingly, Binance Launchpad had quietly gone into the shadows, and ICO’s still reigned king. It took Binance over 15 months to launch their next IEO: the buzz-creating BitTorent (BTT) token, currently trading around 5x its initial value.
While Binance Launchpad was lurking in the shadows, IEO’s began to gain popularity in China and Korea. In fact, there have been many successful raises on a growing number of exchanges that now conduct IEOs: Coinbene, Gate.io, Coinsuper, ProBit, BitMax, and many more have seen IEO successes. Now the “big boys” are FOMO-ing into the IEO craze, with exchanges like OKEx, Huobi, and even Bittrex looking to conduct token launches of their own.
The most impressive exchange that’s caught the attention of the industry, to much surprise, is the BitMax exchange. BitMax introduced the concept of “reverse mining” which offers a separate incentive structure for market makers, launched margin trading of up to 10x leverage for many of its trading pairs, and conducted heavy promotional campaigns with projects. The result? Consistently high performing IEO launches and over $3.5bil in reported trading volume per day (although that number becomes a lot smaller when adjusted - another topic for another day). The question is, is BitMax’s model sustainable? Only time will tell, as we see exchanges fluctuate in volume all the time (remember when Poloniex was a top 3 exchange?).
ProBit, a Korean-based entity, is another exchange that has been showing impressive rounds, now with three consecutive sell-outs: Spin Protocol (3 minutes in the first round), CLINK (140 minutes in the first round), and yesterday’s IEO with LINIX (5 seconds in the first round).
Take a look around, smell the coffee brewing - it’s already beginning to revive the industry for projects that aren’t seeking to raise a ridiculous $50mil through an ICO with a whitepaper and a website. This new form of fundraising is quick, easier (and safer, as exchanges have their due dilligence processes) for retail investors, easier for projects (as they pass off the KYC/AML compliance responsibilities to exchanges), and it’s growing at an exciting pace. In some ways it’s leveling out the playing field, as Binance isn’t the only “hot” exchange anymore. Projects listing on exchanges we’ve never heard of just a few months ago are beating the bears and posting impressive gains.
STOs are exclusive, subject to long lockup terms, very strict regulations by the SEC, and do not have exchanges where they can be freely traded. I was never keen on STOs, as it went against many values of cryptocurrencies and the decentralization movement. Still, I welcome STOs as they will surely bring more institutional money into the space.
But let’s be honest now. IEOs are much more attractive, exciting, and non-exclusive. I see a much brighter future for IEOs. Welcome to a new era of crypto fundraising.