An ICO is an acronym used for “Initial Coin Offering”, which is a funding method used by companies to get the resources they need to develop their projects. An ICO uses cryptocurrencies as the main source of funding for the first stages of the business.
This mechanism was the fundraising pioneer in the crypto space, well-known for its decentralization and flexible terms. blockchain-based systems are now able to be funded by investors without the necessity of going through complicated financial processes. This funding instrument has also the potential to impact the value of a token positively, if the ICO was successful, or inversely, if it goes worse than expected. A successful ICO can drive demand and recognition, that’s why a startup put a lot of effort in structuring one.
An IEO, on the other hand, is a fundraising instrument that is not open to all investors. IEO is an acronym of “Initial Exchange Offering” as it is a mechanism hosted by an exchange to raise capital for a specific company. Therefore, an IEO is lead by a recognized crypto exchange on behalf of the company. For investors to be able to participate in the process, they need to create an account on the exchange where the process is being made. Also, to conduct an IEO, a company must meet certain requirements asked by the exchange. The token sale can only be done if the startup follows the procedures.
Nowadays, many important exchanges has their own IEO Platform. For instance, Binance has Binance Launchpad, Bittrex has Bittrex International IEO, Bitmax has Bitmax Launchpad, OKEx has OKEx IEO and Huobi has Huobi Prime.
Both, IEOs and ICOs have one singular goal, raise capital, however, the models they use to attract investors is completely different. Here some key differences:
- ICOs are not monitored by any specific financial entity, while an IEO is.
- The risk of investing in a IEO is lower compared with an ICO, as an IEO is backed by a recognized exchange.
- An ICO is conducted the project’s developers, while an IEO is totally structured by the exchange.
- While anyone can launch an ICO, not every single startup can launch an IEO. The exchange must screen the company before starting the process.
- When a startup conducts an ICO, they have to reach out to different exchanges to list its tokens, while with an IEO, the team automatically gets the support of the exchange to list the token after the crowdsale.