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IEO momentum builds as Huobi unveils platform

Just when the ICO movement seemed to be grinding to a halt, a slightly different form of the controversial crowdfunding mechanism is gaining momentum.

As ICOs stall, IEOs are gaining momentum with several major exchanges now releasing their own Initial Exchange Offering (IEO) platform. Chinese-exile exchange Huobi Global, based in Singapore, is the latest to join the craze. Huobi Prime joins Binance’s Launchpad, Kucoin’s Spotlight, OKEx’s Jumpstart, and a host of other platforms issuing this new model of coin offering.

Just like STOs, IEOs represent a mutation of the ICO model in response to increased regulatory scrutiny and ongoing SEC enforcement action. The first to popularise the model —the Binance Launchpad — initially went live in 2017, but was reactivated in early January and has promised to launch at least one new project every month in 2019.

Two successful project launches later, the IEOs concept is spreading — with several major exchanges now offering their own IEO platform.

IEOs – Exchange-based ICOs

From the perspective of a token project, being taken under the wing of an exchange like Binance for an IEO offers significant advantages — giving them access to expert guidance, potentially game-changing publicity, and — more crucially given the recent enforcement climate — the ability to shift the burden of compliance onto the exchange.

Exchanges too, have much to gain from the arrangement — charging a fee for admission, taking their cut of revenue generated from token trading, and seeing a boost to their own native token. Instead of needing to buy ethereum to purchase ICOs, investors using the Binance Launchpad must buy Binance Coin (BNB), and those using Huobi Prime must buy Huobi Token (HT). Not surprisingly, both coins have soared in price since the IEO movement gained momentum.

From the investor’s perspective, the IEO model also offers distinct advantages. Instead of being locked up for a set period, or only made available on small obscure platforms, tokens can be traded immediately on highly liquid big-name exchanges, by anyone who has a KYC-verified account.

The main appeal for investors though, is likely to be trust. Tokens taken on by the exchanges must pass a screening process designed to minimise liability that would presumably prevent dubious or scam projects from being able to access funding.

This screening process varies from exchange to exchange. The Binance Launchpad refers to four essential criteria: "a relatively mature-stage of project development, readiness for large-scale adoption, a strong and committed team, and the potential to benefit the growth and development of the wider crypto ecosystem".

Says Binance founder Zhao Changpeng in a Twitter AMA. "Right now, I think most people don’t like ICOs too much, because there are too many scams and too many fraud activities. But I think there’s a lot of projects and teams in the industry who are now vetting projects and analyzing projects, and we want Binance Launchpad to be a platform where we bring good projects to our users so that we do the due diligence. And we select good projects."

Similarly, Huobi Prime has its own crypto project evaluation model — "SMART-Chain 2.0" — which claims to select the best digital assets based on the strength of the team, how progressive the business model is, existing financial backing, community support, reputation, and not having been previously listed on any major exchange.

Less reputable crypto trading platforms, though, like OKEx which has recently been implicated in a fake volume investigation, aren’t likely to be able to lend the same amount of prestige to token projects, and despite their claims, are also less likely to be able to offer that extra level of trust to investors: "To maintain trust with its customers, the exchange must carry out a comprehensive assessment of the project before launching the IEO. This provides an extra layer of protection to contributors." wrote OKEx in a blog post announcing its OK Jumpstart platform.

Whether IEOs represent a way to realise the benefits of ICOs without the downsides, or are just a simple rebranding exercise, remains to be seen, but favourable returns mean this new fundraising model is likely here to stay: the first Binance Launchpad project BitTorrent token hit its hardcap of $7.2 million in less than 15 minutes, and the second — Artificial Intelligence platform Fetch.AI — hit the hard cap of $6 million in just 22 seconds.


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