The crypto industry may become an alternative to the traditional financial institutions which are currently distinguished by redundant red tape. Initial Exchange Offering (IEO) is one of the alternative investment raising methods.

This article offers an overview of the IEO and the IEO launching process, and also covers the associated challenges one may face.

What is IEO?

IEO (Initial Exchange Offering) is a tool enabling startups to issue their own in-house currency exchangeable to popular cryptocurrencies such as BTC and ETH.

A company receives BTC or ETH while investors get tokens which can subsequently acquire various properties. Token properties define its value which may take on the form of discounts for goods, access to miscellaneous services or preferential right to buy goods. Tokens are traded at the exchange acting as a trustee.

How does one launch an IEO?

The IEO launching mechanism involves 3 basic phases:

Phase #1: the exchange performs legal due diligence and eliminates fraudulent projects.

Of course, there is a risk of malpractice on the part of the exchange which may collide with creators of a fraudulent project. If you intend to do the IEO, you need to choose a reliable reputed exchange.

Phase #2: the exchange sells tokens on its website and performs necessary AML and KYC procedures.

Any investor willing to participate in the IEO must go through the exchange’s verification process. It includes the provision of the scanned passport and confirmation of residence. The place of residence is usually confirmed with a bank statement regarding utility payments.

Phase #3: money is credited to the issuer’s token account.

In this phase, the responsibility for the investor’s funds security passes from the exchange to the token issuer, i.e. the company performing the IEO. So where there is an issue of expediency of using the funds, the exchange is only exposed to reputational risks.

Finding the right investor is not an easy task so one should take good care evaluating the need of attracting the “mass investor”. Private Sale, where the company’s virtual currency is sold to a limited number of investors, is one of the alternatives to IEO. Telegram with its in-house TON currency is one of the successful examples of fundraising via Private Sale.

SBSB Legal Firm has an extensive portfolio of successful IEO launches. Our lawyers will be happy to advise you on all IEO-related matters.

What are the IEO challenges?

We have highlighted key challenges which may come up during the IEO process:

1. High exchange fees which depend on the project risk. Those are payable for the token exchange listing and may amount up to 20 BTC.
2. Only verified investors may participate, and the verification procedure may take 1 to 30 days. Investors wishing to remain anonymous cannot launch the IEO.
3. There is no guarantee that the company will raise the required amount for the IEO. If the amount is not raised, the investors will get a refund but the company issuing the tokens will incur substantial losses.
4. There is a risk that your token will be recognized as security. One needs to adopt a comprehensive approach towards this matter and make sure to have a legal opinion confirming that the token is not a security. Otherwise, one may be in trouble with regulators.

We advise you to consider IEO as an alternative method of investment raising. Those planning to launch the IEO would benefit from referring to professionals. SBSB will help facilitate and accelerate the IEO launch. We offer end-to-end legal support and Private Sale services, and we also have reliable exchange partners. Join our Telegram chat for a free online consultation.