By Andre Kalinowski, co-founder of PARSIQ
Over the course of the last year, the crypto market has seen a growing number of Initial Exchange Offerings (IEOs), whilst Initial Coin Offerings (ICOs) have been in decline. But what caused the rise of the IEO, and why do businesses prefer them over the ICO?
Initial Exchange Offerings were the brainchild of the major cryptocurrency exchange Binance, and quickly became a business model that attracted interest from a host of similar organisations – not least Bitfinex – to varying degrees of success. Recently, US crypto giant Coinbase has talked of porting the concept to its own business. But why would it?
Well, IEOs provide a funding model for crypto projects that’s not dissimilar to established ICOs, but with Exchanges planting themselves firmly at the heart of the process. Thus, rather than projects courting multiple market makers for listings, they throw their hat in the ring with a particular exchange from day one.
Beginning with Binance and Bittorrent
Binance developed the idea as part of its Binance Chain project, which emerged as a concept in 2017 and matured into its own blockchain mainnet and Decentralised Exchange (DEX), back in April. The native token of Binance Chain is BNB, which the company ported over from Ethereum when its own system went live.
Via its Binance Launchpad project, its IEO platforms seem to serve a three-fold purpose: to promote the use of BNB token through its use as a point of entry for buying the new tokens, to utilise Binance Chain as the network upon which the tokens will operate, and to position itself at the centre of a blockchain ecosystem that blurs the lines between its role as an exchange and technology platform provider. That model has served tech giants Apple, Microsoft and Google very well: provide the marketplace, the tech the marketplace depends on, and benefit all along the chain.
The pioneer IEO was that of the well-established P2P service Bittorrent. This was something of a genius move, leveraging the reputation of an established tech-centric brand to bring press interest and legitimacy to Binance’s new concept. For Bittorrent, a company attempting a transitional move to offering data distribution services, it raised valuable capital following its purchase by Tron’s Justin Sun. The attractiveness of the Binance offering was highlighted by the fact that BTT tokens exist on both Binance Chain and Tron’s own blockchain.
A two-way relationship
The benefits of an IEO works both ways too, as the impact of Bittorrent’s IEO on Binance’s BNB token cannot be underestimated either. The purchase of the first BTT tokens was offered via a lottery among BNB holders, and they were paid for in BNB. This gave a boost to the value and utility of Binance’s native crypto in the same way as Ethereum’s value grew through the course of 2017 due to its role as fuel for the ICOs of hundreds of blockchain-based start-ups.
The IEO model simply leverages the symbiotic relationship that has always existed between tokens and exchanges in a cryptocurrency world where trading is still the major driver.
However, questions have remained about the transparency of these IEOs. If exchanges can exert excessive control over which companies get to have successful launches, and dictate terms for entry, will that kill projects prematurely? Moreover, for crypto projects with successful IEOs, the benefits are obvious – but what about for consumers? There have been reports of IEO projects leaving IEO participants in the red, and the unregulated nature of the some of the players involved has also led to controversy.
Our PARSIQ IEO represents the future of IEOs
It is for this reason that PARSIQ has decided to conduct its IEO with CoinMetro’s Direct Platform, as this protects participants in our IEO and holds us to account for achieving certain milestones within specific time frames. In fact, we are the first company to take this leap and ensure transparency from the outset of our IEO, as transparency is a core value of our business.
Fifty per cent of the funds raised in our IEO will be held in escrow by a third-party custody service (CoinMetro), assuming we raise more than €1 million. If we raise less than €1 million, then the funds will be immediately available. Any funds held in escrow will only be released incrementally once we have reached certain milestones, according to predetermined timescales. In the unlikely event that we fail to reach our goals, participants would be entitled to vote on a refund of the funds not yet released. This provides a safety net for our participants, as well as demonstrating our confidence in achieving our goals on time.
We believe that this will become the standard way to conduct IEOs in future, as crypto businesses look to return the favour and help the community that believes in their projects, and we look forward to continuing to develop our blockchain monitoring platform with the help of our community.
To find out more about how you can get involved in the PARSIQ IEO, go to www.parsiq.io.