An Initial Exchange Offering (IEO) is a fundraising method where emerging cryptocurrency projects distribute their tokens through reputable exchanges instead of selling directly to investors. Unlike the Initial Coin Offerings (ICOs) of 2017, IEOs add a vital layer of security by having exchanges vet and approve projects before listing them.
Introduced in 2019 to address the scams and failures that plagued ICOs, IEOs have since gained strong traction. By April 2024, Binance Launchpad alone had supported 91 projects, raising over $188 million from more than 5 million participants. This is solid proof that exchange-backed token sales are becoming a lasting part of the crypto ecosystem.
How an IEO Works: A Step-by-Step Guide for Investors
The IEO process begins when a cryptocurrency project contacts an exchange to facilitate its token sale. The exchange evaluates the project’s whitepaper, team qualifications, and business model. The duration of this vetting process may vary, taking anywhere from weeks to months, based on the specific standards set by the exchange.
The project team initiates the process by presenting their proposal and whitepaper to the exchange. The exchange then undertakes a comprehensive due diligence process to evaluate the project’s viability. After receiving approval, the exchange proceeds to inform its user base about the IEO. To participate, investors are required to have an account on the exchange and must complete the KYC verification process.
When the IEO launches, investors can purchase tokens directly through their exchange accounts using supported cryptocurrencies such as BTC, USDT, or the exchange’s native token. Once the sale concludes, tokens are generally made available for immediate trading on the same exchange. This offers immediate liquidity, a feature that is seldom provided by ICOs.
Why Investors Are Choosing IEOs Over ICOs or IDOs
Model | Platform | Trust Level | Liquidity | Investor Control | Risk Level |
ICO | Direct from project | Low | Depends on listing | High | Very High |
IEO | Exchange-backed | Medium-High | Immediate | Medium | Moderate |
IDO | Decentralised launchpad | Medium | High | High | High |
Exchange vetting reduces the risk of fraudulent projects because exchanges protect their reputations by reviewing token issuers before hosting an IEO. While this screening is not perfect, it is a significant improvement over the unregulated ICO era. IEOs also simplify participation. Investors complete KYC verification once and can join multiple offerings without sending funds to unknown wallets or interacting with unfamiliar websites.
Tokens list immediately after the sale, giving investors instant liquidity and removing long waits for exchange listings. The credibility of the exchange builds trust and improves visibility for new projects. Once the token is listed and you start trading, your gains become taxable.
Compared to other fundraising models, IEOs offer a practical mix of access and security. ICOs offer control but little protection, leading to a high number of scams. IDOs offer liquidity and decentralised control but lack centralised vetting and KYC requirements. For most retail investors, IEOs present the most balanced option in terms of risk, safety, and opportunity.
Advantages and Disadvantages of IEOs
|
Advantages |
Disadvantages |
|
|
1 |
Exchange vetting reduces scam risk |
Vetting doesn’t guarantee project success |
|
2 |
Immediate token listing provides instant liquidity |
Limited allocations due to high demand |
|
3 |
Simplified KYC process (one-time verification) |
Regional restrictions exclude many investors |
|
4 |
Enhanced credibility through exchange backing |
Centralised control by exchange platforms |
|
5 |
Better exposure and marketing support |
Potential token dumps post-listing |
|
6 |
Easier participation process for investors |
Higher listing fees for projects |
|
7 |
Built-in user base from exchange community |
Regulatory uncertainties in various countries |
When demand is high, it frequently results in restricted allocations for individual investors. Exchanges implement various methods, such as lottery systems, snapshots, or first-come-first-served approaches, to allocate tokens. This indicates that you may not receive the allocation you desired, even if you are prepared to invest.
Investors face challenges due to regulatory uncertainties and regional restrictions. Certain nations enforce stringent regulations regarding the sale of crypto tokens. US investors frequently face restrictions that prevent them from participating in numerous IEOs, primarily due to regulatory concerns. It is important to verify your eligibility prior to expressing enthusiasm for an IEO.
The risks associated with volatility after listing and the potential for token dumps are significant concerns that should be acknowledged. When early investors or team members sell their tokens right after listing, it can lead to significant declines in price. The 2025 Chainalysis report indicates that 3.59% of all tokens launched in 2024 displayed patterns associated with pump-and-dump schemes. Exchange-backed projects can still be affected by market manipulation and suboptimal tokenomics.
How to Participate in an IEO: Step-by-Step for Beginners
Participating in an IEO can be an exciting way to invest in new crypto projects, but it requires proper preparation and understanding of the process. Here’s a quick step-by-step guide to get you started safely and smartly-
- Create an account on a reputable exchange that regularly hosts IEOs, such as Binance, KuCoin, or OKX. Choose a platform with a strong track record of legitimate and successful project launches.
- Complete the Know Your Customer (KYC) verification process to confirm your identity and eligibility. Some IEOs are restricted in certain regions, so ensure your country is supported before proceeding.
- Research the project thoroughly by reading its whitepaper, studying the tokenomics, and evaluating the team behind it. Avoid projects with unclear goals, anonymous founders, or unrealistic promises.
- Understand the IEO’s allocation and participation rules. Some exchanges use a lottery system, others take balance snapshots, and some work on a first-come, first-served basis. Familiarise yourself with these details to maximise your chances of securing a token allocation during the sale.
- Fund your exchange wallet with the supported cryptocurrency, usually BTC, USDT, or the exchange’s native token, like BNB for Binance Launchpad. Ensure the funds are available before the IEO begins.
- Plan your post-sale strategy in advance. Decide whether you want to hold the tokens for long-term gains or sell them shortly after listing. Having a clear plan helps you avoid impulsive decisions in volatile market conditions.
How to Evaluate an IEO Before Investing
Below are some key points to keep in mind while evaluating an IEO before investing in it-
- When judging IEOs, exchange trustworthiness is very important. Binance Launchpad stands out because it offers full support, ranging from technical advice to helping with marketing. If you want to know how the exchange chooses projects, look at their past of successful initial coin offerings (IOFs).
- The basics of the project should be your main goal. Is it clear how the token can be used? Do people really want what they’re building? Check how the plan is being carried out and see if the team has kept the promises they made in the past.
- Audits and compliance checks are very important ways to tell how good a project is. Technical flaws are less likely to happen when smart contracts are audited. Check to see if the code and tokenomics have been looked over by outside experts.
- Early dumps by team members and early investors are prevented through vesting periods and lock-ups. Longer vesting schedules usually indicate that the project team intends to build for the long term. Be cautious of projects that unlock team tokens immediately after the IEO.\.
- Getting the community involved shows that they really want the project to succeed. A strong and busy group of investors shows that people are optimistic about the project. Look at what people are doing on social media, primarily in Discord and Telegram channels.
Notable IEO Success Stories (and What Investors Can Learn)
In January 2019, BitTorrent (BTT) experienced a rapid sellout on Binance Launchpad, completing its sales in just a few minutes. BitTorrent launched a token sale on Binance Launchpad, successfully raising $7.2 million in under 15 minutes. This lesson emphasises the importance of timing and preparation during the launch of high-hype IEOs.
Fetch.AI (FET) showcased the potential of exchange-backed projects in contributing to long-term value. The second IEO on the cryptocurrency exchange’s platform, Fetch.AI, reached its hard cap of $6 million in a remarkable 22 seconds. This project demonstrated the importance of speed, while also highlighting that exchange vetting can effectively identify truly innovative projects.
Polygon (MATIC) was introduced through an Initial Exchange Offering (IEO) and has established itself as one of the leading blockchain projects. AXS achieved a market capitalisation of $8 billion, while MATIC exceeded $12 billion. Polygon’s story highlights the significance of fundamentals. The technology effectively addressed significant issues faced by Ethereum users, demonstrating its practical value beyond mere excitement.
Notable launches such as LUKSO (LYX) raised $220,000 and achieved a remarkable 187.51x ROI. These success stories illustrate that IEOs have the potential to provide remarkable returns, particularly when the project is built on solid fundamentals.
The Future of IEOs
As things stand, institutional exchanges are putting in place tighter screening processes. It’s no longer possible to start projects quickly. To protect their users and their identities, exchanges now do background checks that last for months.
As regional launchpads grow in Asia and the Middle East and North Africa (MENA), they open up more possibilities for investors around the world. Local exchanges know more about the markets in their areas and can find projects that will help certain groups. This geographical spread is good for investors who want to make money on sites other than the big ones.
IDOs and centralised coin sales put pressure on IEOs to come up with new ideas. You should think about more than just IEO vs. ICO. Other options, such as security token offerings (STO), initial token offerings (ITO), and initial DEX offerings (IDO), have also worked well. IEOs need to keep providing value that goes beyond just backing an exchange.
As better allocation systems come out, steps to protect investors are changing. Exchanges are trying out fairer ways to distribute funds and putting in place ways to stop people from duping. These changes make it easier for small buyers to use IEOs while still meeting security standards.
Conclusion
IEOs provide a more structured and safer way to invest in new crypto projects, as the exchange vetting process significantly reduces scam risk compared to the ICO era. While they are not perfect, they balance safety and opportunity, but investors must still conduct their own research. Exchange approval does not guarantee success or eliminate all risks, so informed investors combine the platform’s due diligence with their own analysis to make sound decisions.
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Frequently Asked Questions
Will My IEO Tokens be Tradable Immediately?
Yes, in most cases. Tokens from IEOs are usually listed on the host exchange right after the sale wraps up. The instant liquidity stands out as a significant benefit that IEOs offer compared to ICOs.
Are IEOs Safer than ICOs?
IEOs offer a heightened level of safety, as exchanges thoroughly evaluate projects prior to facilitating token sales. Nonetheless, they come with their own set of risks. While exchange approval can lower the risk of scams, it does not ensure the success of a project or shield it from market fluctuations.
Can US Investors Participate?
The outcome will depend on the exchange and IEO in question. Many exchanges don’t let US buyers in because of rules set by the government. Before you get involved, make sure you read the exchange’s rules and know the laws in your area.
How Are Allocations Typically Decided?
How allocation works varies by trade. First-come, first-serve, lottery (more exchange tokens = more tickets), and snapshot-based (holding tokens at a certain time) are all common methods. Each IEO says ahead of time how it will distribute resources.
What Documents Do I Need to Join an IEO?
Most exchanges require standard KYC documents before you can participate in an IEO. This usually includes a government issued ID, proof of address, and in some cases a selfie for identity verification. The exact requirements depend on the exchange and your region, so it is important to review the platform’s KYC guidelines before starting the process.
