Initial Coin Offering Vs Initial Exchange Offering – Crypto App Factory
Initial Coin Offering (ICO)
Initial
Coin Offering (ICO) is the Cryptocurrency equivalent of an Initial Public
Offering (IPO), where a company goes from private to public status by selling
shares for equity. This is typically done to get funds without the need to go
to a Venture Company (VC) or bank. An ICO solves the basic problem of initial
coin distribution.
An initial coin offering is similar
in concept to an initial
public offering (IPO), both a process in which companies raise capital,
while an ICO is an investment that gives the investor a crypto coin, more commonly
known as a coin or a token in return for investment, which is quite different
to the issuance of securities as is the case in an IPO investment.
ICOs are easy to structure because of
technologies like the ERC20 Token
Standard, which abstracts a lot of the development process necessary to
create a new cryptographic asset. Most ICOs work by having investors send funds
(usually Bitcoin or ether) to a smart contract that stores the funds and
distributes an equivalent value in the new token at a later point in time.
Pros of ICO
1)
No
extensive disclosure requirements for the fundraiser (so far)
2)
You
can raise a lot of funds at an incredibly (likely even too, but what the heck)
early stage of your company
3)
Easy
Validation
4)
Scope
for exponential growth
5)
No
easy constraints
6)
Gives
opportunities to promising projects
7)
Doesn’t
require unnecessary paperwork
8)
Community
building
9)
Exposure
for projects
10) Early access to potentially valuable
tokens
11) Incentive for innovation
Cons of ICO
1)
Attracts a lot of scammers
2)
Based on pure speculation
3)
Whaling time
4)
Network Congestion
5)
Storing the tokens
6)
Government intervention
Initial Exchange Offering
(IEO)
Unlike
an ICO (Initial coin offering), an IEO (Initial
exchange offering) is not open to the public. You’ll have to be a user of
the hosting exchange to participate in the token sale. While an ICO allows any
contributors to buy the token for sale by sending funds into a specific
address, an IEO requires contributors/users to buy the token by using the
exchange’s accounts.
The biggest
problem with ICO is that it is not monitored by any third parties. Basically,
anyone can launch an ICO, as long as you have a white paper to convince
investors to put funds to your company.
On the other
hand, IEO is a very, if not entirely, different model. While both ICO and IEO
share the similar rationales of Initial Public Offering (IPO). In an IEO, an
exchange is an administrator.
To conduct
an IEO, the project team must meet and comply with the exchange’s requirements
in order to launch the token sale. Contributors are, therefore, protected by
the exchange.
Pros of IEO
1)
Reduced risk for
fraud. On exchanges the risk for scams is reduced and smart contracts cannot be
endangered
2)
Simplified
process for startups and developers
3)
More options for
their customers. They provide a section of coins for new coming customers and
enable traders more freedom and transparency.
Cons of IEO
1)
Strict Requirements of Exchanges to companies
doing IEO
2)
IEO is not free, it requires a specific budget
3)
No Guarantees of success
4)
The key to the successful IEO
5)
It might be time consuming to create accounts
on different exchanges
6)
Every exchange requires a KYC (know your
customer)
7)
It’s quite easy for big investors to
manipulate the price of the token
8) In security matter this approach for funding a
project adds an additional point of failure (the exchange)
9)
Scam projects would definitely want to do an
IEO so your token could be listed on an exchange
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