The difference between Initial Coin Offering and Initial Exchange Offering

Introduction

If you are familiar with the cryptocurrency world, you know that blockchain technology has led to an increase in the number of cryptocurrency projects on the market. Some programmers and developers have creative and ingenious ideas but do not have the capital to implement their proposed project. This allows them to raise capital using methods such as initial coin offering (ICO) and initial exchange offering (IEO). In this interview, we asked Mr. Mohammad Hosseini, one of the leading analysts and traders in the cryptocurrency market, to introduce us to these two terms. In the following, we will provide his explanations about initial coin offering, initial exchange offering, and the main differences between them. 

What is an initial coin offering or ICO?

Everything about the difference between initial coin offering and initial exchange offering

Initial coin offering is one of the ways to raise capital to create new cryptocurrencies. Implementing cryptocurrency projects is not an easy task at all, and many developers are not able to afford it. In the initial coin offering, the idea makers presented the users with a white paper outlining the main goals of the project. You can buy a portion of the stock and invest in the proposed project by carefully reviewing the information. But unfortunately, many scammers raised people's money and capital in this way. Therefore, users no longer trust projects that raise capital through the initial coin offering method. So you need to make sure that the project is real before you trust such people, and then spend the capital that you have earned over the years in this way. 

What is the initial exchange offering or IEO?

Initial Exchange Offering
As mentioned, other users no longer trust initial coin offering projects. Therefore developers had to use a new way of raising capital. Initial exchange offering is known as one of the alternative methods. In the initial exchange offering method, project founders use the position and reputation of the exchanges to raise capital. In this way, the exchange introduces the project to its users by earning a certain amount of money. The exchange then covers all services related to the buy and sale of that cryptocurrency. But keep in mind that exchanges do not introduce every project to their users. First of all, the exchange research team carefully examines all the goals, features, and capabilities of the project, because they do not want to lose their credibility among network users by introducing an inappropriate cryptocurrency. Therefore, it can be concluded that in most cases, exchanges introduce valuable projects. This issue has made initial exchange offering projects welcomed by many users. 

What is the difference between an initial coin offering and an initial exchange offering?

As you can see, there are many structural differences between the two methods of initial coin offering and initial exchange offering. One of their main differences is the presence of a third party. In the initial exchange offering, the exchange acts as an intermediary that offers its users to invest in a new cryptocurrency project. But in the initial coin offering, the developers of the project, without the presence of any intermediaries, raise capital by using various methods of advertising and marketing.

It is interesting to know that initial exchange offering does not correspond to the main purpose of the emergence of cryptocurrencies, ie decentralization. In this method, only people who have an account in the exchange can invest in the project. Among them are those who do not have access to exchange services due to government sanctions. So there are always some people who cannot participate in the project. But initial coin offering structure is different because in most cases developers advertise through the website or send emails to those interested in investing. So people from all over the world can easily buy the amount of stock they want in the initial coin offering of cryptocurrencies.

One of the other differences between the two methods of initial coin offering and initial exchange offering is the information provided by investors. As mentioned, in the initial exchange offering each user must have an account in the exchange. Therefore, certain information about them has been registered in the exchange network. On the other hand, in the initial coin offering, detailed information and specifications are not received from the project investors. This is why many experts and activists in the field of cryptocurrencies do not offer users to participate in initial coin offerings.

In addition to all the above, you only need a website and white paper for the initial coin offering. But the process in initial exchange offering is quite different. Exchange experts carefully review all project information and follow strict rules to maintain their credibility.

As you can see, each method has its advantages and disadvantages. Investing in initial coin offering projects is very risky but users around the world can buy a portion of the company's stock. On the other hand, keep in mind that project developers often seek to put their ideas into action. Therefore, they may encounter unpredictable problems in the implementation path, which will lead to the cessation of the project implementation process. In addition to all the points mentioned in the initial coin offering method, the members of the developer team are in charge of managing the project, so they do not follow certain regulations.

On the other hand, in the initial exchange offering method, the project structure is carefully reviewed by exchange experts. As a result, users can more easily invest in the introduced cryptocurrency and buy a portion of the project stock. In addition, if they want to sell it for any reason, they can easily sell the cryptocurrency in their account using the exchange network services. So the amount of liquidity in the initial exchange offering is greater than the initial coin offering. In some cases, shareholders in initial coin offering projects have even expressed dissatisfaction with the very low liquidity problem of their cryptocurrencies.

On the other hand, many developers are unable to pay the financial costs of partnering with exchanges. Therefore, they cannot use the initial exchange offering method to introduce the project and raise capital. Researches have shown that in some cases, market whales have bought a large portion of the shares in initial exchange offering projects and are raising and lowering the price in their favor by misusing their available power.

You can easily get the most up-to-date and accurate information from various websites and sources, and by putting together factors such as competitive advantage, disadvantages, and your investment goal, decide which one can be a better option for you. Experience has shown that successful investors have a clear understanding of their purpose in the first place and then move in the direction of achieving the predetermined goal according to the information they have. 

Closing thoughts

In this article, we were with Mr. Hosseini to get complete information about the initial coin offering and initial exchange offering. As we have seen, users can more easily invest in projects offered by the exchange. Of course, this does not mean that the projects with initial coin offerings are scams, but people should invest in these projects more cautiously. 

Summary: To raise initial capital, projects start offering their coins so that people can invest in this project by buying them. This is done in two ways: initial coin offering and initial exchange offering, which are different from each other.

for more information: www.hoseinifinance.com


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