Crypto Investment Terms; What’s the difference between ICO, IPO and IEO?
This is a probable scenario if you clicked on this blog post:
It’s been a while since you dipped your toes into the world of crypto investment, and some new terms like ICO, IEO, and IPO have caught your attention. If you want to understand the difference between these new terms, look no further!
After knowing what crypto investment is and how you should start this journey, it’s time for you to learn the key differences between these crucial crypto terms that’s been talked about in the media. Without further ado, let’s dive in.
What is ICO?
Initial Coin Offering, or ICO for short, is one of the methods by which the team members of a new project attract capital. In this method, they first sell their blockchain-based tokens to early fans; users receive tokens that they can use immediately or in the future.
In fact, with this method, the funds required for the development of the project are provided. This method became popular in 2014 and was first used by the Ethereum project to provide funding. Since then, many other projects have used this method to attract capital.
It was in 2017 that the use of this method reached its peak. When initial investors are given tokens, they are not given any ownership of the respective company.
ICOs can be a good alternative to funding various startups. Often, newcomers, without even having a functional product, seek to attract funds for their projects. However, investors rarely invest in a project only for its white paper. Actually, the lack of cryptocurrency for a blockchain project is one of the reasons why investors are not interested in investing in it. Therefore, offering a special token and selling it to early adopters can be a good incentive for investment and provide the necessary funds for a project.
How does ICO work?
ICO can take different forms. Sometimes, the development team will have a dedicated blockchain application they will develop in the coming months and years. In this case, users can buy their tokens on the same blockchain.
In the second case, the dedicated blockchain may not be launched yet; this way, investors can get their tokens on other blockchains such as Ethereum, and after the main blockchain is launched, they will be able to transfer your data to the relevant platform (Swap). The most common method is to offer the token under the title of a smart contract on another blockchain, which is mainly used in Ethereum. Many of these tokens use the ERC20 standard. In addition to Ethereum, other blockchains are used to implement smart contracts, for example, NEO, Waves, NEM, and Stellar. Due to the flexibility of these platforms, some projects do not intend to create a dedicated blockchain and use these platforms to develop their smart contracts.
ICOs are usually announced ahead of time, with rules for implementing them. A period for purchase may be considered, or a limitation for the number of sold tokens may be introduced. A whitelist may also be provided that investors must fill before purchasing. Users first send their funds to a certain address to invest and buy tokens. Investors must either provide the team with a new address to receive the token, or the token will be automatically sent to the address from which the payment was made.
What is IPO?
Initial Public Offering or IPO means offering shares of a private company for the first time. The term going public also refers to IPO in some informal cases. Many of these companies conduct IPOs to sell their shares to the public. Start-ups, growing companies, or entrepreneurs who need funding usually use IPOs to raise capital for further development.
Before implementing IPO, a committee of financial and regulatory experts should be formed to review all the necessary processes. Once a company has made its initial offering, it can still raise capital by making secondary offers in the future. A company open to the public has advantages, including that employees can be shareholders, increasing their motivation to work more. In some situations, IPO increases the credibility of the company. However, after the initial public offering, the company’s value is likely to be evaluated based on its stock value, which may affect its actual performance. Some companies may artificially raise the stock value, which may eventually cause problems.
What is the difference between IPO and ICO?
Although IPO and ICO are used interchangeably, the fact is that there is a huge difference between the two. IPOs are usually for businesses that have reached maturity and are now selling their company shares to raise capital. But ICO is used as a fundraising mechanism and enables companies to raise capital for their project in the early stages, and investors do not buy any ownership in the company. In addition, IPOs are usually regulated by government authorities and are used in centralized environments. On the other hand, there is a lack of regulation for ICOs, and their risks are much higher.
What is IEO?
IEO is also a kind of fundraising system, with the difference that the projects that use this method to raise funds usually need a large amount of capital, and for this, the initial supply of their tokens is done through reputable exchanges such as Binance.
In other words, Initial Exchange Offering or IEO, as its name suggests, means initial offering through exchanges. This method allows potential investors to purchase these assets through exchanges before they are available in the market. After providing their KYC information, users can purchase the relevant token. Since an exchange does the IEO, the project developers must be obvious and consistent in their path. Exchanges carefully check projects that intend to attract funds by IEO because exchanges never want to question their credibility by offering a faulty project. For example, Elrond is one of the most reliable blockchain projects that used IEO on the Binance exchange and sold many of its tokens.
Why do blockchain projects use IEO?
Fundraising for decentralized and blockchain projects is very difficult. Like any other industry, there is a lot of competition to attract investors, and not everyone can successfully attract investors to this new technology. IEO can be a good choice for attracting capital because when a reliable exchange like Binance trusts a project, it can definitely attract the trust of people and investors more easily. After the initial release by the exchange, the project token will be listed in the same exchange for transactions.
What is the difference between IEO and ICO?
On paper, the concepts of IEO and ICO are very similar. When the ICO reached its peak in 2018, many people were caught in fraudulent projects because there was no special supervision. After the emergence of IEOs, people considered them more valid and trustworthy.
To put it simply, participating in an ICO carries more risks. Investors had to send Bitcoin or Ethereum to a smart contract or the web and wait to receive a token. Anyone with ample knowledge of smart contracts and web development can design a deceptive website and start raising funds. IEO has greatly reduced these risks. Instead of sending it directly to the project, the investors deposit the money to the wallet of the respective exchange. Also, scam projects will never be able to do it due to the strict conditions of the IEO. In addition, in an IEO, it is guaranteed that the corresponding token will be listed on the exchange, and investors can easily withdraw their capital whenever they need it.
The Recap about ICO, IPO, and IEO
A lot of crypto projects that have an ICO can be successful. However, many crypto projects that get listed on exchanges are not successful. Experiences with decentralized exchanges can be positive or negative. No matter how you invest in crypto, just make sure that you do your research first. We tried to give you enough information about the differences between ICO/IPO/IEO so that you can make wise decisions in your investment journey.
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