While some endorse IEOs, Kick Ecosystem’s CEO Danilevski argues that they’re a dangerous scam enterprise which will soon be replaced by the much more secure STOs and honest utility token sales.
IEO, Initial Exchange Offering, is a buzzword as ubiquitous today as its predecessor ICO, Initial Coin Offering, was a little while back. The general idea remains the same: you pre-sell your tokens to investors in order to receive sufficient funding before your coin hits the market. There are, however, a couple of substantial differences.
The main one is that with ICOs, it’s up to the ICO team itself to do everything: create all of the necessary infrastructure, prepare smart contracts, and then see the whole process through.
With IEOs, however, most of this technically challenging and often tedious work is handled by crypto exchanges who partner up with tokens-to-be and launch them, getting service fees and a share of their profits in return.
While most crypto experts say that neither of the two models is perfect because each one is prone to abuses and scams, many claim that IEOs are generally better structured and safer, and are thus the way to move forward. Some even go as far as claiming that because of their superiority, IEOs are capable of reinventing the whole crypto industry.
As a matter of fact, I say IEOs are bad news now, and yet worse news in the days to come. This time everyone will be affected: not only projects and investors will suffer, but also exchanges who sold their reputation for raised fees. IEOs are a bigger and more elaborate scam than ICOs ever were, and they spell an all round disaster.
Exchanges in many ways are the real winners in these scams because they pump IEO token prices to make themselves look better. And if a project’s price can no longer be pumped, the exchanges simply pocket the project’s money raised during the campaign, which they ingeniously freeze as a “deposit”.
The most cunning exchanges also buy out project tokens at the very start. As a result, the users “do not make it in time” to buy tokens. And since the money that the users allegedly paid for is frozen in the form of a deposit, the exchanges pump the price of the token and then buy those tokens back from themselves.
The users are told that the capital raised was spent on market-making, while the exchange gets to keep all of the money.
Subsequently, exchange-owned tokens are sold to users at an inflated price, so the exchange earns from both ends, whilst painting a completely distorted picture of real events.
We will not name the exchanges where users “do not make it in time” to buy tokens, but most attentive people know them anyway. This whole game is a charade meant to look clean and disguise what is really going on.
What’s worse, 90% or even more of all IEO campaigns are fabricated. In fact, we at Kick Ecosystem published an outline of this fundraising model in 2018 in our White Paper, but the trouble is that exchanges essentially stole our idea without understanding how to implement it correctly, and honestly.
IEOs are hitting the industry hard, even if it isn’t apparent to the untrained eye. I’m convinced that the consequences will be worse than what they were after the collapse of the ICO market.
This time, for obvious reasons, the effect will be appalling for the exchanges themselves, who are the very perpetrators of this scam. Nowadays, cryptocurrencies have a much more legitimate status, and there are regulations in place. Investigations and arrests are inevitable when the whole picture with the IEOs starts to clear up.
Soon, the IEO deposit periods will end, so will push demand marketing, and the prices of IEO tokens will go down the drain. And this is what will most likely trigger the next crypto crisis.
Some claim that IEOs are already on the wane citing their decreased volumes on major exchanges. This opinion is particularly prevalent in the Turkish market.
Furthermore, Binance officials recently delisted six trading pairs from their Launchpad IEO platform, among them ERD, BTT, WIN, and ONE. Doubtlessly, the exchanges are starting to realize the potential dire consequences of getting involved with IEOs.
This is why, I suspect, Kucoin halted all of its IEOs: everyone there understood that the jig was up.
The only token sale solution in the future can be an honest, transparent system, in which utility tokens get a fair price, no one affects the sales volume, and each purchase is confirmed. Incidentally, this will be implemented on our fundraising platform.
An additional method, which is emerging only now and is more difficult for startups, is the STO (Security Token Offering), or the sale of tokenized shares of companies. In this case, the prices of such tokens do not respond to speculation, because, as with stocks, the price is tied to performance. More regulations are coming into force around the world, even in Russia, where a legislative ground for this is being shaped as we speak.
My prediction is that all ventures in their current form will transform and move towards the STO model, because it is simple, convenient, affordable, and fast.
At the same time, venture investment will become available to ordinary people, and this is very important since, thanks to the Blockchain, crowdfunding is about to become a new global phenomenon, the likes of which we haven’t seen.
I suspect the new crypto crisis will last about a year, unless the exchanges stop at once their marketing of IEO tokens. And even if they don’t stop, they won’t be able to do it forever.
Most companies that launched IEOs are sure to disappear within the next 8-10 months, though there may be quite a bit of muddling. Then the STO era will come into being, and this will be a new level of hype that will surpass many times over all else that came before, because this market is hundreds of times larger than the ICO market or the IEO market.
I do have to add, however, that some ICO and IEO companies are legit, so we will see some of those in the future, too, but not many.
For our part, we will soon demonstrate a new fundraising model, the AIO, which is honest, fair, and transparent, having been designed specifically for token utilities. We are building our fundraising platform precisely in view of all that’s been discussed above.
Our task is to create an ecosystem where users can not only trade but also participate in STO venture campaigns and become real investors or co-owners of startups... and maybe even unicorns.
The IEO era is short-lived: they’re a has-been of the crypto world. This model is fundamentally flawed and still not fully compliant, having failed to resolve many of the ICO drawbacks; as a result, they don’t appear appealing to traditional investors, which is the main point.
Concurrently, more and more experts are predicting a further growth of STOs, among them a trade insider Eugene Loza, aka EXCAVO, who also foresaw this trend, already last year. EXCAVO publicly stipulated that the STO process was more stable and stringently regulated, predicting an STO rush as more people learnt about this paradigm.
The question now is who’s going to side with whom and how many millions worth of losses and official investigations it will take to switch sides. Will people take reckless or calculated risks? Will it be conscientious chess or frenetic dodgeball? Only time will tell.
(Disclosure: The Author is the Founder and CEO at KICKICO)