What is an Initial Exchange Offering: Must Read Guide
Initial Exchange Offerings, or “IEOs,” have been called everything from the second coming of the initial coin offering, a.k.a. “ICO 2.0,” to the next “killer app.” In the first half of 2019, they have already caused quite a stir among those active in the cryptocurrency community. So, what exactly are IEOs and do they live up to the hype?
Before answering the question—”What is an IEO?”—it will be useful to provide historical context, especially for anyone who is not familiar with the cryptocurrency industry. This history lesson will include a quick review of initial coin offerings, or “ICOs.”
There is some disagreement as to which was the “first” ICO, but J.R. Willett, founder of Mastercoin (which utilized the ICO fundraising method), is most often credited as being the inventor of the ICO, which he described in “), when looked at month-to-month, 2018 was a miserable year. From a high of US$1.5 billion in January, the chart below shows a trendline predicting a collapse in December, which is exactly what happened. To add insult to injury, information came to light that many projects had engaged in “interproject token swaps,” where one startup raising funds swapped its tokens with another project and both claimed the value of the tokens based on the closing price of each other’s ICO. In short, the ICO boom had completely busted by the end of 2018.
There are different theories as to exactly why the ICO market imploded as quickly as it began. It is safe to say, however, that at least two factors were involved: (1) many (if not most) of the projects raising funds were simply not very good; and (2) the theory behind the ICO as a sound investment was flawed, meaning that the incentives of startups and investors were completely misaligned and the only real winners were investors who could manipulate the markets to their advantage. In retrospect, the collapse should not have been much of a surprise, as the multitude of problems with the system were all well-documented by independent bloggers and journalists within the industry:
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