Has the IEO Craze Already Fizzled Out?
Being vetted by an exchange removes only one of the problems that plagued ICOs. It's still far too early in the game to conclude that IEOs are on the way out.
Touted as the successor to the wildly lucrative initial coin offering (ICO), initial exchange offerings (IEO) were sold as a safer way of investing in new blockchain projects.
However, a new market report from TokenInsight has found that investor interest in IEOs has waned in recent months.
But while short-term trends indicate a move away from IEOs, longer term data indicate that the success of IEOs has been steadily growing overall since "IEO" became a buzzword at the start of this year.
Decline and fall
An IEO is basically an ICO, except that it's held by a crypto-exchange on a dedicated token-sale platform. As such, it benefits from the publicity and liquidity offered by the corresponding exchange, while would-be investors receive the assurance that the exchange has vetted the token for quality.
“Some business insiders, however, said that the trend of announcing IEO projects by exchanges were nothing more than the old wine in a new bottle, and follows the same additional funds collecting tactics used by exchanges and projects during the 2017 Initial Coin Offering craze,” according to TokenInsight.
As the ICO market began to decline towards the end of 2018, there were hopes that IEOs would rejuvenate token sales. However, this hasn't exactly been the case, as the report from TokenInsight concluded.
"The IEO boom that swept through the entire cryptocurrency industry during the second quarter, only lasted around two months," its authors wrote. "According to CoinSchedule, the total IEO market volume peaked in May but started to slump quickly from June."
While the TokenInsight report cites data only until June, CoinSchedule itself reveals that total IEO volume decreased even further in July, dropping from USD 125 million to USD 52 million. Likewise, the monthly number of IEOs dropped from 18 in May to four in June and then five in July.
IEOs = ICOs?
The numbers therefore don't look too great for IEOs. And as digital assets lawyer Ziv Keinan suggests, one of the likeliest reasons for the underperformance of IEOs is that they've inherited the two biggest weaknesses of ICOs.
"ICOs and IEOs suffer from the same problems which prevent them from scaling," he tells Cryptonews.com.
"1. The business model of utility tokens did not prove itself. Most of the investors in the ICO market lost their money. 2. Regulatory risk - no business can scale when it has a regulatory risk. It's not only the issuers which might find themselves under investigation by the regulator but also the platforms which are marketing and selling those tokens."
Being vetted by an exchange removes only one of the problems that plagued ICOs, which was the existence of exit scams. Nonetheless, it's arguable that the biggest problems faced by ICOs were the regulatory pressures being placed on cryptocurrencies from the likes of the U.S. Securities and Exchange Commission (cf. Kik), as well as the fact that many of the tokens they helped launch have never really had the chance to become useful.
Longer term growth
And one other point needs to be made: there is often a discrepancy in reporting on IEO data.
According to TokenInsight, IEOs raised USD 1.1 billion in May, while the total for June collapsed to USD 125 million, which was also less than the USD 153 million generated by exchange offerings in April.
Meanwhile, according to data from TradeBlock cited in the Wall Street Journal, IEOs raised USD 518 million in the five months to the end of May. More meaningfully, the January total for IEOs was around USD 10 million, while this increased to about USD 20 million in February, over USD 110 million in March, over USD 220 million in April, and just over USD 150 million in May.
Finally, CoinGecko, has stated in its Q2 release that IEOs raised only USD 262 million over the first six months of 2019.
As such, it's hard to be entirely sure as to where exactly the IEO market stands at this early stage in its history.
That said, it's still far too early in the game to conclude that IEOs are on the way out, even if they've had a disappointing summer.
Next stop - STOs?
But even assuming that IEOs will have difficulty living up to the hype, there is one emerging investment vehicle that may end up fillings its hyped shoes.
This is the security token offering (STO), providing investors with the chance to purchase security tokens, which are tokenized forms of more traditional securities and digital assets. Some (incredibly) bullish analysts expect the STO market to be worth as much as USD 10 trillion in five years time, largely because security tokens can be used to tokenize pretty much any kind of pre-existing asset.
"A Security Token is a digitally represented and self-enforcing security," explains Ziv Keinan. "This is a brand new concept for the traditional investment world. STOs are not designed to replace IEOs or ICOs; they're designed to replace the way we do traditional investments - commodities, real estate, and art are all going to be tokenized."
"This is a trillions of dollars market opportunity," he concludes, making the amount of money raised by IEOs and ICOs this year look pretty modest by comparison.
Meanwhile, according to Carlos Domingo, founder and CEO of security token platform Securitize, the STO market is estimated to grow this year, but at a steady rate - and the explosion might come some time until 2021.