The main reason for the end of the ICO era was the insecurity of investors’ rights, high-risk investments and increasing pressure from regulators. But the market immediately offered two alternatives to solve these problems – IEO and STO.
STO is the primary offer of security tokens, which are tokenized shares and a real investment tool. Owning them the investor receives certain benefits, such as the right to dividends or a share of the company’s profits. Such coins should be provided, for example, with assets of a startup, and this should be legally confirmed before the start of sales.
The main advantage of STO is increased safety and reliability.
The STO project meets all the requirements of the SEC – the investor’s money is protected by law. In the case of disputable situations, the user can file a complaint with the relevant authority, because now the token falls under the securities legislation. The legal basis of a startup, government control, and accessibility for institutional investors are factors that influence user confidence in the viability and investment potential of a company.
The disadvantages relate to project costs and the right to invest. Legal support of the STO-project, the release of the security-token and the elaboration of its functionality will cost a much larger amount than with ICO. Finally, only qualified investors can take part.
IEO – Exchange as a guarantor?
Initial Exchange Offering (IEO) is the sale of ICO-project tokens through a cryptocurrency exchange. Therefore, the project cannot reach IEO without the approval of the exchange which will pre-test it with all care so as not to spoil its own reputation.
Exchanges interact with developers and investors Through IEO. The issuers offer their product to the cryptocurrency resource, which corresponds to the cryptocurrency listing clause. The exchange involves a team of analysts, conducting a startup check. Based on the test results, a decision is made to include the tokens in the listing. If a team of experts finds the project to be not potentially profitable, it is rejected. In the case of a positive decision, the exchange undertakes to sell tokens. Previously, the parties enter into an agreement, which stipulates the important conditions: asset price;
the maximum number of coins per person;·
payment of services of the exchange;·
distribution of marketing costs, etc.
Another prominent feature of IEO is the rejection of “gas” competition.
Buying tokens during the ICO, investors overcharged the commissions (gas) to be the first buyers and earn more. When working through the stock exchange, this will not work. This method is also beneficial for the project itself, which thanks to the listing gets a ready user base – customers of the exchange.
IEO projects have a number of advantages:
Saving on advertising and searching for investors, as there is already a formed audience on the exchange;
Listing on the exchange itself, which took a lot of time and moral and financial efforts from ICO projects, is provided automatically;
Confidence in the project is increasing, as the investor is confident that before listing all key financial indicators were carefully checked.
However, to participate in the initial exchange offer, the investor must go through the registration and verification procedure (KYC). This may seem time-consuming, but this step is crucial in terms of protecting the customer from any kind of frauds.
Among the drawbacks of the IEO procedure, it can only be noted that the acquired tokens are not sent to the investor’s smart contract, but are stored on his account at the stock exchange issuer. Exchanges, unlike digital assets based on the blockchain, are usually centralized, which increases the risk of losing assets in the event of a hacker attack or any other fraudulent activity.
Until national laws on the turnover of digital assets are adopted, it is IEO that is the main way to attract investment for promising projects in the cryptocurrency market.