Copy and pasted article from Medium:
IEO- A no go.
Recently we have seen a massive increase in the popularity of IEO Projects with the Binance Launchpad. Some have Exalted this as the revolution of the market, thinking that it will excel us beyond the 2017 ICO Hype, When we were all talking about where security coins would benefit the market, IEOs were born, while Security token hype seems to fallen off somewhat.
With MultiVAC raising over 3.44m in 7 Seconds, its hard to deny what the market is pointing towards, However, I feel as if IEOs still do not address the core concerns of the blockchain market.
While it is somewhat an improvement on the ICO in terms of due diligence, with the exchanges staking their reputation on the issuance backing the project, and that there is liquidity at an earlier date, there are still a number of failures here.
There has never been an IEO from a Decentralized exchange, all funds are received by a centralized institution, all transfers are conducted by the exchange not blockchain, the exchange manages all of the wallets, in fact, you technically do not even own the tokens. While there has been a constant increase in the professionalism and regulation of exchanges, I still have a jaded memory of the days of the exchange leaks and hacks, its not a matter of not liking exchanges in general, simply that having a single point of failure is hardly ideal, and for the Blockchain purists, they simply hate it as it is entirely centralized.
The problem here would be that because so far we have seen only ETH IEOs, we have a potential Gas War coming when we get this on to Decentralized exchanges to conduct the IEOs,
2 Investor Behavior
Because of the nature of the pre-sales and incentives for early stage investors, without significant lock ups, the initial investors simply dump the tokens off for an immediate profit leaving the tokens trading below issue prices.
MTV price activity from ICO…Thats a big OOOOF my guy.
Just look at Multivac, its down 65% from IEO…Ouch. With this kind of investor behavior, without prior announced lock ups, why the hell would you ever buy in at the start of the IEO? The structure of discounts and pre-sales incentives investors to delay buying in until far beyond the IEO once the ‘dump’ is priced into the market, meaning that over time we will naturally see a greater failure rate amongst IEOs than even ICOs.
3 Its still not a security
The coins are used for a native platform, they have no underlying asset, they guarantee you nothing and the firm has no obligation to maintain the price of the assets. Regardless of a green-light from Binance Launchpad etc, the tokens mean nothing unless the platform is successful, and even if the platform is successful, the token can still be worthless it is utter speculation.
4 Do they really check it that much?
While there is a reputation risk of the exchanges in hosting an IEO, it is rather minimal, in the case of a scammer slipping through the net, its simply a blame game, they will pass on the blame and ask for forgiveness from their clientele, who have rather significant loyalty, particularly in the case of Binance and KuCoin, in short, the cost for them for a shitcoin slipping though the net is essentially minimal in the unregulated world of tokens. While they might, have a brief look over it, what are the incentives for the exchanges? Exclusive access to hyped projects and new clients. If you have an incredibly hyped project that could bring the exchange thousands of new users, do you think they will let you run to the competition because they think one part of your plan isn’t as robust as it should be? God no, they will compete over the hype projects. They are still getting paid their exchange listing fee by the project, which is sheerly extortionate. there is a set of incentives in the market of IEOs that inherently destabilize the market and its quality, it is a never ending spiral of hyped trash hitting the market.
While I have no disagreements with KuCoin and Binance, they seriously need to publish and abide by strict guidelines on the acceptance of these IEOs or else there is a doomed market coming again.
These are the core reasons why when I wrote about my TISTO mechanism. (Trade Initial Security Token Offering, check out my article below)
TISTO: How to make Security tokens work for investors
“It would be wonderful if we could avoid the common setbacks with timely exits.” — Peter Lynch
It is a regulated security tied to an asset, its not just a gamble on the supply and demand dynamic of a token for a platform that isn’t even operational yet.
It is conducted by regulated entities, such as SIX exchange, CBOE or ICE. It isn’t some jump start exchange with a history of leaky bank accounts and hackers backdoors. If you did want it conducted by a fully digital exchange, they would still require regulation, by the red tape it is a safer option. They have guidelines, you have FINMA, FCA, SEC so on so forth signing off before its issued. It is an adherence to quality and a move away from the negative incentives to pump shitty projects.
During this crypto Winter, we were Buidl-ing, working on promoting quality, getting mainstream adoption, then the IEO arrived in the Hype cycle to destroy all the good progress, it isn’t an innovation, it isn't a revolution, it isn’t a step forward, watching this market hype IEOs is like being in a crypto Groundhog day reliving the doomed hype of ICO’s.
Its an Exchange based Coup D’etat, with the titan exchanges taking exclusive centralized power over a market who’s entire purpose was decentralization, a Crypto night of the long knives just happened and no one seemed to notice, killing Decentralization as a driving force in the market in the Crib.
In Summary, IEOs are absolutely daft, investing in them will more than likely lose you money, and the incentives in the market make sure that a slew of worse projects will come to the market through them.
Get back to the Drawing board, Buidl something actually innovative.