IEO vs ICO explained | StormGain (2024)

AnICO is a relatively new way for blockchain startups to raise funds. However, after a rapid rise in popularity, ICOs began to lose momentum. The lack of regulation led to the emergence of many fraudulent ICOs, and the collapse of the cryptocurrency market in 2018 prompted investors to lose interest in new blockchain projects. In an effort to bring investors back to the blockchain industry, new fundraising methods, such as IEOs and STOs, were created. In this article, we'll take a closer look at the difference between these fundraising methods and try to identify which one is more promising: an IEO, ICO or STO?

There needs to be some standards around launching an ICO and investing in ICOs in the space, and I caution all to tread carefully until those standards emerge. — Nick Tomaino, Founder of 1confirmation.

The difference between an ICO and an IEO

Many fraudulent ICOs and the uncertain prospects for even those startups that aren't scams present a serious problem inherent in ICOs. One method of solving these problems was to involve a third party that could weed out fraudulent ICOs and help promising startups attract investments. Crypto exchanges took over this third-party role. That's how Initial Exchange Offers (IEO) first appeared.

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What is an IEO?

An IEO is a fundraising method in which a crypto exchange undertakes the responsibility for evaluating the project, attracting investors and managing the distribution of tokens. You can find more details about what an IEO is and how it works in our article.

ICO vs IEO - The difference

Although an IEO is a type of ICO, there are several significant differences between the two fundraising methods.

• The main difference between ICO and IEO crypto is that a startup trying to raise funds through an IEO has a key partner, i.e., a crypto exchange that acts as an intermediary between the project's developers and investors. The crypto exchange evaluates startups that have applied for an IEO and manages the sale of tokens.
• An exchange's preliminary evaluation of projects significantly reduces investors' risk since fraudulent and unpromising projects are most likely to be excluded by exchange analysts. This, in turn, increases investors' confidence in verified startups and has a beneficial effect on the blockchain industry's development.
• Tokens are listed on the exchange within a few days after tokens are sold. With an ICO, tokens are very often not listed on the cryptocurrency exchange immediately. Instead, they are listed months after the token sale ends. In some cases, the listing never takes place, and the project collapses.
• Since the sale of tokens for an IEO occurs through a crypto exchange, only users who have an account on the exchange and have been verified can become investors.
• With an ICO, developers conduct a marketing campaign. To do so, they use paid advertising, forums and social networks. With an IEO, the exchange takes over this role.
• An IEO is run by a central authority: an exchange. It increases the process's centralisation, which goes against decentralisation, one of the blockchain ecosystem's basic principles.

An IEO vs ICO comparison table

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Where do STOs come into play?

The Security Token Offering (STO) model has also recently emerged as another alternative to ICOs. It differs from an IEO in that it doesn't involve a third party. Instead, it tries to turn tokens into real financial instruments. This model partially resolves the problem of crypto tokens' legal compliance with stock market requirements.

What is an STO?

An STO is a method of selling digital tokens on a blockchain that meets the characteristics of securities. This means that the token's owner receives the same set of rights as a stock owner, including the right to a share in the company, part of its profits, and decisions about business changes. Considering all this, security tokens are completely legal assets from the point of view of most legal frameworks on par with securities. This also means that the distribution of such tokens complies with the strict requirements that ICOs fail to comply with.

An STO vs ICO comparison table

Conclusions

The blockchain industry currently uses all three of the previously mentioned fundraising methods. As you can see, each one has its own set of advantages and disadvantages, so which method is the best? The answer to the question is not as simple as it may seem at first glance.

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