LKS Foundation

Science & Technology

What’s the meaning of IEO?

2020-03-26 15:07:44

LKSCOIN will present itself to the public through an IEO, but what exactly is an IEO? Those who have frequented the environment of cryptocurrencies will be accustomed to acronyms, since over time they have followed several, sometimes creating confusion among investors and making them skeptical.

So let's see the evolution of these acronyms and how IEOs represent a safer evolution of these projects based on cryptocurrencies. Let's start by "unrolling" the acronyms: ICO (Initial Coin Offering), STO (Security Token Offering), IEO (Initial Exchange Offering). Needless to say, all of them have the same goal, to wit, to allow companies or foundations to raise funds in order to finance their projects. ICOs were the first to appear on the market: companies collected money by selling their tokens directly to interested parties. The latter could have some utility within the company's own project, or they could act as exchangeable assets like a security. We can say that the ICO period was a bit like the Wild West: no regulation, no supervision of the projects and very often they ended up being scams. As long as you could convince the investors of the goodness of the project, you didn't have to worry about anything else.

However, the lack of regulations has attracted the attention of several regulatory institutions that have practically reduced to shreds the practice of relying on ICOs, thus giving rise to STOs subsequently. One can think of the latter as a regulated ICO, but with two substantial differences: while the tokens issued represented financial assets in all respects, with the ICOs instead one could also issue utility tokens that had a certain functionality and utility in the project; STOs were fully regulated, therefore were offered exclusively to accredited investors, thereby leaving out several people who did not have enough money to be considered "accredited investors". And therefore the evolutionary history of the world of cryptocurrencies has brought a new practice: the IEO.

The latter are nothing but ICOs managed by an exchange, therefore instead of having a company or foundation that sells tokens directly to the public, with the IEOs the exchange does it on behalf of the company or foundation. Here's how it works: a company or foundation pays a commission to list part of its tokens on a specific exchange; in return, the latter takes care of all the other aspects, such as creating a market for the token, securing the funds and sifting the investors. After this phase, the token is placed on the exchange's website and the sale of the tokens is conducted through it. Once the time frame of the sale ends, the tokens are immediately ready to be exchanged with the rest of the market.

But what are the advantages of an IEO compared to an ICO and a STO?

image source: hakernoon.com

The first and most important advantage is the increase in trust in the project: investors trust the reputation of the exchange, and since the exchange is put on the front line when it offers the public a specific token, they will have an incentive to support the project presented through an IEO. Needless to say, scam projects are drastically reduced if not deleted altogether. The second advantage is that IEOs are open to everyone (unless specific people are rejected by the exchange after having examined their credentials), thus allowing even smaller investors to participate, which instead would have been impossible with a STO given its high standards of eligibility. A third advantage is security: in the past, ICO funds could have been lost due to hacking or theft, while with IEOs, exchanges have to secure investor funds, and this is basically their job. As a result, we are not faced with start-ups without experience in the field. Finally, the company or foundation that sells the token does not have to worry about regulation, since it is up to the exchange to evaluate investors through KYC (know your customer).

In conclusion, IEOs represent a win-win-win situation for all parties involved: exchanges, investors and companies/foundations that seek to raise funds for their projects. With an IEO, each party can focus on what it does best: exchanges think about regulation and funds; the company/foundation plans to develop its project; investors feel safer knowing that each of the other parties is focused on doing their best.

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