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IEO serves similarly to the Initial Coin Offering (ICO) - both allows selling tokens to finance early-stage projects, however, the key difference is that both the project developer and the investors facilitate their transactions through a third party - a reliable exchange. The exchange acts as a guarantor and conducts a project due diligence check on the project team. Having IEO to streamline the process, developers are no longer required to perform KYC verifications. Indeed, it can bring about widespread publicity and a quicker listing process.
ICOs have developed a negative reputation due to the various scams and disappearance of projects. Therefore, having a reputable exchange as a partner can greatly increase the credibility of the startup. Bad projects can and will affect the reputation of the exchange as well.
Crypto exchanges are strongly incentivized to vet the token issuer and the quality of their offering. In order to protect their name, exchanges require the startups to be credible and thus, these startups will undergo intense due diligence by the exchange. This highly reduces the likelihood of the startup being unveiled as scams.
Projects listed as IEO on exchanges will enjoy a near-instant listing. Another difference is that ICO’s mint their tokens once the funding gets completed. In the case of IEO’s, projects generate tokens and send them to the exchange platform.
A huge obstacle for ICOs is handling KYC/AML. For IEOs, token issuers do not have to worry as the exchange shall manage the KYC/AML process is also handled by the crypto exchange.
Conducting an initial coin offering through an exchange might sound a little safer because it addresses one key issue that plighted many an ICO; the option to sell the tokens at a later date.
Coins were often sold through an ICO with only promises that they would later be available on exchanges. In some cases, tokens offered through an ICO were never listed on exchanges. When buying tokens through an IEO, you buy in the knowledge that the exchange has done some due diligence and is launching a coin it believes has a future. After all, it’s in an exchange’s best interest to not burn its customer base by issuing dodgy tokens.
That said, you should always remain cautious of the exchange you’re buying from, and the potential motivation it might have for listing an IEO. Particularly, as some exchanges have been accused of accepting money to list certain tokens in the past. What’s more, you’ll likely have to undergo know-your-customer (KYC) and anti-money laundering (AML) checks, depending on the exchange you sign up to. Which, if well implemented, should add an extra layer of investor protection and make it more difficult for illicit investors to participate.
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