With Initial Exchange Offerings (IEOs) gaining in popularity, industry experts have been suggesting that their uncertain regulatory status doesn’t necessarily mark an improvement as a way of generating new capital.
An IEO is conducted via a cryptocurrency exchange. Unlike Initial Coin Offerings (ICOs), an IEO is administered by a crypto exchange on behalf of the startup that seeks to raise funds with its newly issued tokens. ICOs raised nearly USD 30 billion over a period of three years until hitting a wall in 2018/2019 as the SEC cracked down on fraudulent activity and illegal offerings blighting the market.
Many analysts see IEOs as a way of sidestepping strict market regulation, but Peter Van Valkenburgh, director of research at advocacy group Coin Center in Washington, begs to disagree that there is any mileage in this argument. He suggests:
“I don’t expect IEOs to result in better outcomes… From a regulatory and legal standpoint, there’s not going to be much difference here… Calling it now an IEO is not going to change your obligation to the potential issuer of that token if the token fits the test for a security, which I think in many cases it will.”
Crypto advisory firm TokenMarket’s CEO Ransu Salovaara claims that whatever the method of raising capital, tokens still need to work as utility tokens in the long run. Cryptocurrency research firm InWara claimed that only 30% of IEOs launched this year had what it calls a “minimum viable product” at the sale with most offering simply a website and a white paper.
A recent InWara research report into IEOs found that many exchanges don’t screen new products launched on their platforms, often offering subjective evaluation:
“That’s the problem here: there is no standardized vetting process… And as long as exchanges have the freedom to decide where to draw the line, bad actors, and fraud crypto projects will always creep into the limelight.”
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