Initial Coin Offering (ICO)
Initial Coin Offering (ICO) is the Cryptocurrency equivalent of an Initial Public Offering (IPO), where a company goes from private to public status by selling shares for equity. This is typically done to get funds without the need to go to a Venture Company (VC) or bank. An ICO solves the basic problem of initial coin distribution.
An initial coin offering is similar in concept to an initial public offering (IPO), both a process in which companies raise capital, while an ICO is an investment that gives the investor a crypto coin, more commonly known as a coin or a token in return for investment, which is quite different to the issuance of securities as is the case in an IPO investment.
ICOs are easy to structure because of technologies like the ERC20 Token Standard, which abstracts a lot of the development process necessary to create a new cryptographic asset. Most ICOs work by having investors send funds (usually Bitcoin or ether) to a smart contract that stores the funds and distributes an equivalent value in the new token at a later point in time.
Pros of ICO
1) No extensive disclosure requirements for the fundraiser (so far)
2) You can raise a lot of funds at an incredibly (likely even too, but what the heck) early stage of your company
3) Easy Validation
4) Scope for exponential growth
5) No easy constraints
6) Gives opportunities to promising projects
7) Doesn’t require unnecessary paperwork
8) Community building
9) Exposure for projects
10) Early access to potentially valuable tokens
11) Incentive for innovation
Cons of ICO
1) Attracts a lot of scammers
2) Based on pure speculation
3) Whaling time
4) Network Congestion
5) Storing the tokens
6) Government intervention
Initial Exchange Offering (IEO)
Unlike an ICO (Initial coin offering), an IEO (Initial exchange offering) is not open to the public. You’ll have to be a user of the hosting exchange to participate in the token sale. While an ICO allows any contributors to buy the token for sale by sending funds into a specific address, an IEO requires contributors/users to buy the token by using the exchange’s accounts.
The biggest problem with ICO is that it is not monitored by any third parties. Basically, anyone can launch an ICO, as long as you have a white paper to convince investors to put funds to your company.
On the other hand, IEO is a very, if not entirely, different model. While both ICO and IEO share the similar rationales of Initial Public Offering (IPO). In an IEO, an exchange is an administrator.
To conduct an IEO, the project team must meet and comply with the exchange’s requirements in order to launch the token sale. Contributors are, therefore, protected by the exchange.
Pros of IEO
1) Reduced risk for fraud. On exchanges the risk for scams is reduced and smart contracts cannot be endangered
2) Simplified process for startups and developers
3) More options for their customers. They provide a section of coins for new coming customers and enable traders more freedom and transparency.
Cons of IEO
1) Strict Requirements of Exchanges to companies doing IEO
2) IEO is not free, it requires a specific budget
3) No Guarantees of success
4) The key to the successful IEO
5) It might be time consuming to create accounts on different exchanges
6) Every exchange requires a KYC (know your customer)
7) It’s quite easy for big investors to manipulate the price of the token
8) In security matter this approach for funding a project adds an additional point of failure (the exchange)
9) Scam projects would definitely want to do an IEO so your token could be listed on an exchange