How to Invest in IEO: a Step-by-Step Guide
Initial exchange offerings (IEOs) have been growing in popularity in the past few months. As ICOs (initial coin offerings) are starting to move into the background and STOs (security token offerings) have not really taken off yet, IEOs have stepped in to fill the void.
In this article, you will learn how to participate in IEOs as well as the criteria that will help you pick an IEO project with the greatest chances of success.
What to consider before investing in IEOs
Initial exchange offerings (IEOs) are token sales that are held by digital asset exchanges. The exchange acts as an intermediate party between the investors. Investors benefit from the perceived increase in security because the trading platform vets each project beforehand while projects can save costs on marketing and listing fees for their token offerings.
However, not all IEOs are created equal. Therefore, there is a number of things investors should do before taking part in an IEO.
1. Have you researched the IEO thoroughly?
Despite a project being floated on an exchange as an IEO, you must conduct your own research about the project. While exchanges will vet a project before running the IEO, standards vary from platform to platform. To reduce the risk of losing your funds, delve into in-depth research on both the project and the exchange in question.
- Look up the websites and uncover who the people behind the project are. Have they had past successes or failures?
- As far as the actual project goes, is it rooted in problem-solving or is it just a regurgitation of past projects?
- In terms of the exchange, does it have a good standing in the sector?
- Is it known for its superior security practices?
- Is it a new exchange?
Due to the fact that both exchanges and project developers stand to gain if their IEO attracts a large number of investors, there is an incentive to introduce dishonesty into the token offering process. This is why it is imperative that you do your own research on the background of the parties behind both the project and the exchange.
2. How far the project has gotten in terms of software development, logistical and operational architecture as well as all necessary documentation?
While the project developers will likely be utilizing the funds raised during the IEO to further flesh out their concept, they must already have something to show.
A well-designed website, a detailed whitepaper explaining their value proposition and a small team are imperative prior to the launch of an IEO. In the absence of these factors, it may point to a team that is not in it for the long run. An MVP (minimum viable product) or a prototype points to a project with higher chances of success.
3. What exchange will the IEO take place on?
Some projects will run their IEOs on more than one exchange. After you have conducted adequate research on the exchanges and are satisfied with their standards, past performance and the general standing within the digital asset sector, you must consider the onboarding process put in place by the platform.
While different platforms will require different things from a would-be investor, to participate in an IEO you need to sign up to the exchange and fulfill the registration requirements. This typically involves the completion of the exchanges KYC/AML process. You will likely require government-issued identification for this process. Additionally, it is important to consider that this process may take some time so do not attempt to do this on the day of the IEO. Complete this process beforehand.
4. What type of payments does the IEO require?
The exchange floating the IEO, sometimes in conjunction with the project developers, will decide on the digital asset(s) that will be used as accepted currencies during the IEO. Some IEOs support the use of readily available and popular digital assets like BTC or ETH. However, many will require the use of the exchange’s native digital asset.
5. What is the tokenomics structure set in place by the exchange and the project developers?
An IEO must have a medium and hard cap. These figures must be readily available for the investor to see and must be backed by sound rationale. Additionally, consider how the sale of the token is structured. If the IEO is offering only a small portion of the total supply of the coins, with the majority left in the control of the project developers, this is a major red flag.
How to participate in an IEO
There are over 15 exchanges now offering IEOs. Trading platforms are incentivized to participate in the IEO ecosystem because they earn a listing fee and are entitled to a percentage of the tokens sold during the IEO.
According to data compiled by CryptoRank Gate.io, Binance, and Huobi Global are currently the top three IEO platforms. For the purposes of this article, we will focus on these three platforms.
IEOs on Gate.io
Gate.io launched its IEO platform in April of this year. Its IEO platform is called Startup. In the few months after its launch, Startup has hosted three wildly successful IEOs. To participate in the IEOs launched on Gate.io’s Startup, you must first create an account on the platform. This requires meeting extensive KYC requirements to ascertain your identity.
- Once your account has met the requirements and has been granted full functionality within the platform, navigate to the dashboard where you will see a Startup tab.
- Under the Startup tab, you will see a list of the available IEOs.
- Click on the image of the project you are interested in to see all the necessary information. Here you will access the date of the IEO as well as the requirements. Depending on the requirements listed therein, you must ensure you have the required digital asset for the IEO held in your account.
- Once the token sale is underway you will be able to place your order. However, you must first sign the Purchase Agreement provided by Startup.
- Orders on Gate.io are on a first-come-first-serve basis.
IEOs on Binance Launchpad
Binance’s IEO platform is called Launchpad and is available to project developers after they successfully complete the rigorous application process for listing.
- To begin with, you must first register and complete the KYC/AML requirements.
- Then you must purchase some Binance Coin (BNB) and hold it in your wallet. IEOs on LaunchPad are not on a first-come-first-served basis. Instead, IEOs are allocated on a lottery-based system.
- If you would like to participate in an IEO you must hold BNB during the time a snapshot is taken to accord you a lottery ticket. This period is called the holding period and is designed to incentivize users to hold BNB.
- The more BNB you hold, the more lottery tickets you will acquire. It is important to note that these are just lottery tickets.
- The Binance system will randomly choose the winning tickets after which the investor will automatically participate in the IEO.
- Depending on the rules of the IEO, the investors’ wallet will automatically send the pre-determined amount to the IEOs account. Binance developed this complicated system to create a fair unbiased process for its account holders.
IEOs on Huobi
Huobi Global has its own IEO platform called Huobi Prime, which has also managed to stand out among other exchanges that have started to launch IEOs.
- As is customary, you must create an account, and fulfill all necessary legal requirements.
- After you have completed this portion, you must purchase Huobi Token (HT), the platforms, own digital asset.
- While participation in IEOs on Huobi Global is on a first-come-first-serve basis, those who hold HT for a long period qualify for more chances to participate in an IEO.
The Huobi approach is somewhat of a mix between Binance’s Lottery and Gate.io’s system. While holding HT increases your chances of successful participation in an IEO, it also determines your eligibility. You must hold HT to participate in any IEO. It is best to hold HT for over thirty days in the lead up to the IEO you are interested in.
Fortunately, the eligibility requirements on Huobi vary per IEO so it is important to confirm with each project you are interested in.
Once you are sure you have met the requirements, wait for the IEO to go live. Huobi floats IEOs in three rounds. These rounds are on a first-come-first-serve basis but due to the sheer numbers of people participating, it is primarily luck that your order is successful. However, as mentioned earlier having held HT for a long while increases your chances of success.
Each trading round lasts half an hour. Lastly, it is important to note that Huobi only supports the use of HT in its IEOs. Some platforms will allow the use of their own digital asset as well as other popular ones like Bitcoin, but this is not the case with Huobi.
Not all IEOs are winners
While Gate.io, Binance, and Huobi witnessed success with their IEO offerings, it is important to note that not all such endeavors have been so successful.
Bittrex, for instance, has performed unsatisfactorily in its IEO offerings. Two of its IEOs (RAID and the Ocean Protocol) failed. Thus, it is important to consider both the quality of a project and the IEO architecture in place within a trading platform to reduce the risk of potentially losing your invested funds.