Cryptocurrency exchanges actively use native tokens for promoting and strengthening their market position. After issuing its own assets, new platforms attract a seed capital, and the ones already experienced get to increase capitalization. As for traders, they receive benefits of interest or good discounts on fees, which in turn represents an effective way for an exchange to expand its customer base.
In 2019, new applications of exchanges’ own tokens have emerged, while their price and popularity continued to grow rapidly.
The new IEO (Initial Exchange Offering) trend became another reason to buy native tokens. Thus, if earlier they only provided the holders with certain preferences, now they are widely used as a standalone investment tool.
The IEO assets are often available for purchase only for the exchange's own token holders. And practice shows, its rate is usually increased more than by 100% right in the first days after the token sale. By the middle of 2019, more than 20 crypto exchanges have launched its own fundraising platform. The outdated initial coin offer (ICO) was replaced by IEO, which revived the market, marking the end of the crypto winter.
IEO: 2019 Cryptocurrency Trend
The mechanism of initial exchange offering was applied for the first time by Binance back in 2017 when BREAD and GIFTO token sales raised $6 mln and $3.4 mln respectively. But IEO boom happened in January 2019, after the incredible success of BitTorrent crowdsale held on the upgraded Binance Launchpad. During the campaign that lasted for less than 18 minutes, 59.4 bln of BTT tokens were sold worth nearly $7.2 mln.
IEO became an innovative solution adopted by all the members of the crypto market during its stagnation period when users trust was lost and there was no regulator to set the rules of the game. Crypto exchanges managed to win back the investors’ interest by taking the lead in promising projects selection and tokens distribution among the users.
Unlike ICO, IEO implies that tokens are sold under the strict supervision of the trading platform, which studies the project thoroughly and assesses its reliability and sustainability. After that, the contract is signed between the exchange and the project leaders. It defines all the key features of the deal including the token initial price, the maximum emission, soft cap, hard cap, and the details of income distribution procedure.
Trading platforms are interested in successful crowdsale and long-term investment prospects of the assets. These are expected to boost the income, attract new users, and respectively bring in big money.
ForkLog magazine has identified the following key advantages of IEO model in the current market climate:
- a professional selection of crypto projects by exchanges and token sales regulation;
- the lack of “gas wars” inherent in ICO - competition between the token sale participants that forced them to set high gas limits to speed up transactions and be the first buyers of Ethereum-based tokens;
- the fact that exchanges use their own tokens that enable users to carry out transactions within IEO platform without overloading the Ethereum blockchain;
- loyal token sale conditions – standard requirements to users include verification and a certain amount of native tokens on their inner-exchange account.
Today IEO is a key way for promising crypto projects to attract investments. Now, the success of the crowdfunding campaign depends not only on its sufficiency and developers’ effort but on the exchange’s credibility, IEO format, minimal requirements for participants, and project selection approach as well.
How IEOs contribute to native tokens’ growth
A rise in exchange own tokens’ price is directly related to the ways in which they are used. The success of IEO mechanism generated the market growth. The starting point was the first token sale (BitTorrent) held in the new format by Binance on January 28, 2019.
According to a study carried out by BDCenter, by the beginning of the second half of 2019, 12 out of 30 major exchanges analyzed have their own tokens. 9 out of 12 operators have their own IEO platforms and involve their native tokens in the process. These are Binance, Huobi, Kucoin, OKEx, and others.
Since the beginning of 2019, the increase of Binance Coin (BNB) amounted to more than 260%: from $6,08 in January to $21,95 in May. Experts believe the rapid growth of the asset to be associated with the exchange development and the activities in which the token was involved in, IEO in particular. During the 5 months of this year, Binance has run 4 successful IEOs, and with each passing token sale, the growth rate of the token only got bigger.
Below, you can see the details of BNB dynamics during this period:
- After BitTorrent IEO BNB price increased by 16,61%;
- After Fetch IEO BNB grew by 38,79%;
- After Celer IEO BNB grew by 59,45%;
- After Matic IEO BNB rose by 47,42%.
It’s clear that Binance has picked the right direction to move towards in order to strengthen its own token and increase its capitalization. And IEOs they run have been a help here, too.
Over almost two quarters, Huobi Token (HT) has shown a growth rate of 113% – from $1,11 in January to $2,7 in May 2019. In March, Huobi announced the launch of its own asset listing platform based on HT token. In two weeks, the TOP Network’s hit-and-run crowdsale took place. All 300 mln tokens were sold out in 7 seconds.
Chinese exchange OKEx launched its native token OKB (OKB) in April 2018. By January 2019 the asset was priced at $0,66, and it reached $1,61 in May. The total growth amounted to 143%.
In March, the exchange announced the launch of IEO platform OK Jumpstart. In early April, it was reported that Blockcloud token sale was coming up, and it was held on April 10th. The exchange popularity generated publicity over the event, over a short time before the sale started, the OKB growth rate reached a peak of 219%.
The emergence of the first IEOs has clearly revitalized the market. The mechanism provided an effective application and justification for native tokens, bringing new money to the sphere. Of course, this tool doesn’t come without shortcomings: exchange platforms’ centralized structure is still very risky in terms of security, while a professional selection of projects isn’t a guarantee of profit for investors.
If you have any questions or want to consult on IEO marketing — feel free to get in touch with me and my team at BDCenter Digital, where we conduct researches and create Digital Marketing solutions for Blockchain, IT and Startup products.
Nevertheless, today IEO remains the key way to attract investments – and it will be until some other trend shows up.