Initial Coin Offering (ICOs) have been used to raise capital by over 5,400 organisations - the largest amount of money being generated was EOS, that reportedly raised $4.3 Billion followed by Telegram with $1.7 Billion, so it is not hard to see why ICOs have attracted so much attention globally. Unfortunately, it would seem that a number of ICOs are potentially fraudulent, with some estimates saying that over $500 million has been raised for questionable/phony projects. This type of crowdfunding is being replaced by Initial Exchange Offerings (IEOs), which in many ways are very similar to an ICO. The difference is that an IEO is launched and managed by a Digital Exchange, instead of the organisation that is raising capital, itself, carrying out the marketing and distribution of the token. The exchange typically conducts due diligence on the token to be issued and holds and sells the tokens on behalf of the project team. The buyers of the IEO are existing clients of the Digital Exchange, and while this means that there are considerable savings in terms of marketing and promotional costs, many of the exchanges that offer IEOs are charging companies to have access to their distribution capabilities.
It is ironic that ICOs offered the ability for anyone to get access to the potential profits of a token rising in value in a highly decentralised manner. IEOs seem to be moving back to a more centralised model, where investors will need to “sign up” to particular exchanges to get access to individual IEOs and be subject to compliance and regulation. This more centralised style could appeal to regulators, as they may impose regulations on exchanges issuing IEOs and, in effect, treat them like a Nominated Adviser (NOMAD) or a corporate broker.
We are starting to see more asset-backed tokens i.e. Security Token Offerings (STOs) that offer the ability to trade property, commodities, publicly quoted and private shares, and bonds. The institutions that are more likely to buy these STOs ought to draw comfort from this enhanced level of regulation that IEOs may bring.
