The Rise of IEOs and Why They Are Here to Stay

Will Heasman

The advent of initial coin offerings or ICOs revolutionized the future of investing -- particularly within the cryptocurrency industry. At the height of its popularity between 2017 and 2018, ICOs had raised over $14 billion. In just two years, the entire market had accrued almost 140x the total amount gathered in the three years prior; the demand was inconceivable, and nothing was going to stop it - until something did.

IEO dataSource: icodata.io

While ICOs were booming in the relatively nascent cryptocurrency market, they were but a dot on the radar of the Securities and Exchange Commission (SEC). But this dot was growing larger and larger. ICO fundraising plateaued by the end of 2017 with $1.6 billion start-ups funded in December alone; precisely a year later, offerings raised a pale $74 million - a massive 95% reduction from the peak of the ICO craze.

For the most part, the SEC's crackdown circa 2018, is regarded as the veritable death knell for ICOs. The liquidity risks; the potential for scams; and the lack of investor protections all more than outweighed the potential innovation in the mind of the SEC. With a clear mandate to protect investor interest, the SEC slapped penalties on tokens they considered "unregistered securities," discouraging further participation, both from projects and investors alike.

Time for the STO

Though it wasn't all for nothing. The monumental rise and brutal fall of this unique investment instrument paved the way for more adaptive derivatives. From the shattered remains of the ICO rose Security Token offerings (STO), a similar fundraising vehicle boasting one thing ICOs lacked - a transparent, and compliant regulatory framework.

The prevalence of STOs has seen an impressive 130% increase in the first quarter of 2019 alone. However, as with anything, they have their drawbacks. Thanks to the innate compliance afforded by STOs - such as the obligation to register as security and the regulatory due diligence that comes with it - STOs favor accredited, rather than retail investors. As a result, there are very few exchanges that are able, or indeed willing, to list these tokens.

In Steps the IEO

Looking to strike a pleasing middle ground, Initial exchange offerings (IEOs) took the mantle in 2019, raising an estimated $1.7 billion so far.

2.pngSource: Coinschedule

IEOs instantly negated the aforementioned listing issue, providing immediate liquidity by offering the token directly from the exchange. Legitimacy concerns were also remedied, with the IEO platform essentially staking its reputation on the token sale. Moreover, security strengthened through hosting via secured platforms - avoiding the need for vulnerable smart contracts.

Much like STOs, KYC compliance is often mandatory; but investor accreditation is not -- at least not to the same degree as traditional securities laws.

IEO Performance

IEOs have allowed popular exchanges such as OKEx, Binance, Huobi, and Bitfinex to capitalize on the mania around digital offerings, giving new life to what was a dying form of funding. IEO Platforms such as OKEx Jumpstart, have already reared some valuable players in the crypto ecosystem.

Among the most notable of these players is BitTorrent (BTT); the first IEO on Binance Launchpad. In January, 59.8 billion BTT went on sale, with a funding goal of $7.2 million. Within minutes the sale was over, and the goal met.

With a starting value of $0.00012 and a current value of $0.00043, BTT cites a sizable return on investment (ROI) of 258%. This is even more remarkable given that its value has retraced from an all-time high (ATH) of $0.0018 in May - at which time BTT reported an incredible 1400% ROI.

BTT/USDT over the last 90 daysBTT/USDT over the last 90 days | Source: CryptoCompare

Another popular offering arrived in July - this time on OKEx Jumpstart. OKEx Jumpstart has launched eight projects thus far, each differing in use-case and demonstrating varying levels of potential.

UK-based fintech company, Wirex (EXT), was the fourth token to launch on Jumpstart, and it didn't disappoint. WXT met the fundraising goal of $7 million in just 14 minutes.

Starting at a price of just $0.00500 per token, and citing a current price of $0.0147, WXT's total ROI to date stands at 194%. At its peak, WXT fetched a tidy $0.0340, providing an ATH ROI of 580%.

WXT/USDT over the last 90 daysWXT/USDT over the last 90 days | Source: CryptoCompare

Following the success of WTX was Jumpstart’s fifth IEO, Eminer (EM). With a starting price of $0.015 and a funding goal set at $11.6 million, EM stepped up the stakes a little. Nevertheless, the goal was met and the token opened at nearly 3x the sale price, trading instantly at $0.042. This marked an extraordinary ATH straight off the bat, with an immediate ROI of 180%. EM fetches a current price of $0.030, up 100% in all-time ROI.

Eminer price performanceEminer price performance | Source: CryptoCompare

IEO Platform Performance

In terms of IEO platform performance, there are three which stand out from the crowd. Binance, OKEx, and Huobi. According to CryptoCompare data, all three exchanges are ranked in high esteem, with Binance and OKEx both achieving an 'A' rating, and Huobi, a 'B.'

The real test, though, is drawn through the percentage gains of their IEO tokens. Using data gathered from Cryptorank, we can see this performance in action. Based on the mean USD return of all launched tokens, Gatehub is in first place with 11 IEOs and a 97% average ROI. The exchange isn’t, however, ranked as a top tier exchange according to CryptoCompare’s Exchange Benchmark ratings.

OKEx steals first place if we only consider highly-rated exchanges, with an average 73.28% ROI from a total of 8 IEOs. Binance comes in second, citing a 71.9% average ROI from a total of 8 IEOs. And last but not least, Huobi with a 47.30% average ROI from a total of 8 IEOs.

IEO performances by platformSource: Cryptorank

Interestingly, if we look at ATH ROI, the positions change a little. Using this method, Binance places first with a 690% ATH ROI. However, Houbi steps up a rank with an impressive 632% average ATH ROI. This leaves OKEx in third, citing a decent 518% average ATH ROI.

Looking into ATH ROI data can be tricky, however, as it only means their tokens were at one point extremely valuable, but ended up dropping over a longer period of time.

Given this colossal scope for potential IEOs continue to proliferate along with the platforms they’re offered on. Together with this growing popularity and with their ICO predecessors already surmounting major hurdles to adoption, IEOs look like a trend set to continue.