Exchange-issued token financing: Is participating in IEO really worth it?

In the cryptocurrency ecosystem, fundraising methods have been continuously evolving. From early ICOs (Initial Coin Offerings) to now IEOs (Initial Exchange Offerings), each stage attempts to address the issues present in the previous model. So, what exactly is an IEO? Why is it becoming the preferred method for new project fundraising? This comprehensive guide will break down this significant innovation in crypto financing.

Core Concept of IEO: How Exchanges Are Changing Fundraising Rules

An Initial Exchange Offering (IEO) refers to a crypto project selling tokens directly through an exchange platform, rather than raising funds independently from investors. In this model, the exchange acts as an intermediary — it not only provides the sales platform but also conducts strict vetting of projects, then immediately lists the tokens for trading after the fundraising concludes.

Behind this seemingly simple process lies an important trust mechanism. The exchange’s reputation is tied to the projects it lists, meaning it must ensure that listed projects are sufficiently reliable. In contrast, early ICOs were entirely managed by the project teams themselves, lacking third-party oversight, which led to numerous fraudulent projects.

A typical IEO case is the fundraising activity of Sui (SUI). This highly watched project attracted nearly 250,000 users and became a market standout. As of the latest data, SUI’s price is $1.41, with a 24-hour increase of +0.62%, and a circulating market cap of $5.26 billion. Such success is not only due to the project’s quality design but also thanks to the strict screening and marketing efforts of the exchange platform.

IEO vs ICO vs IDO: The Triangular Battle of Fundraising Methods

To understand the value of IEOs, one must first grasp the evolution of crypto fundraising.

Chaos and Disorder in the ICO Era

Early ICOs allowed any project to sell tokens directly to investors without third-party approval. This was meant to democratize fundraising, but the result was disastrous — scams proliferated, and many investors lost their entire investments. The lack of barriers severely damaged the credibility of the crypto market.

IDO’s Decentralized Attempt

To address ICO issues, IDO (Initial DEX Offering) emerged. Conducted on decentralized exchanges, IDOs offer high liquidity and instant trading advantages. However, they still lack the rigorous regulatory scrutiny of centralized exchanges, so investors must still bear relatively high risks.

The Balance of IEO

IEO seeks to find a middle ground. It retains the trust endorsement of exchanges while implementing professional review processes to screen projects. Since exchanges are responsible for the project’s basic quality, they conduct thorough due diligence. This model is safer than ICOs and offers more liquidity assurance than IDOs.

The Turning Point in the Fundraising Ecosystem

The evolution of crypto fundraising was not a sudden leap but a forced upgrade.

Regulatory Storms of 2017-2018

As ICOs grew wildly, governments began to intervene. China and South Korea banned ICO activities in September 2017. Vietnam’s Securities Commission declared ICOs illegal in October 2017. India’s central bank imposed similar restrictions in April 2018, and Bolivia’s financial regulators also banned ICO-related activities in July 2018.

These regulatory crackdowns clearly indicated that unregulated fundraising methods are unsustainable.

Rise of IEO in 2019

Against this backdrop, IEOs emerged as a more structured and safer alternative. Several well-known exchanges launched successful IEO projects after strict vetting. For example, the BitTorrent project raised $7.2 million within minutes via an exchange platform, demonstrating the market’s strong demand for quality projects backed by trust.

This phase marked a significant shift from “wild growth” to “regulated development” in crypto fundraising.

The Five Steps of Actual IEO Operation

Projects and investors participating in an IEO typically go through a relatively standardized process. Understanding this process is crucial for making informed decisions.

Step 1: Strict Project Declaration and Preliminary Review

The project team must submit detailed documentation to the exchange, including a comprehensive business model description, technical feasibility analysis, team member backgrounds, a white paper, and specific token allocation plans. This isn’t just filling out forms; it requires demonstrating professional operational capabilities.

Step 2: In-Depth Due Diligence by the Exchange

The exchange won’t simply accept the project’s self-introduction. It conducts thorough background checks — verifying team identities, assessing technical foundations, analyzing business viability, and ensuring regulatory compliance. This process often takes weeks or months.

Step 3: Determining Fundraising Structure

Once approved, both parties negotiate the specific structure of the IEO, including setting fundraising goals, establishing hard caps (maximum fundraising amount) or soft caps (minimum), fixing token prices, and defining participation limits.

Step 4: Official Launch of the IEO

After listing on the exchange, investors can participate directly through their exchange accounts. This process is much simpler than visiting project websites, downloading wallets, or transferring tokens. Funds go directly into the exchange, reducing fraud risk.

Step 5: Listing Trading and Liquidity

Post-IEO, tokens are usually immediately listed for trading. This ensures investors can quickly access liquidity, unlike early token sales that might require weeks or months to find trading pairs on some exchanges.

Roles and Responsibilities of Exchanges and Project Teams

In the IEO model, different participants have clear responsibilities.

The Mission of the Exchange

The exchange’s core role is to act as a “quality gatekeeper.” It must:

• Conduct comprehensive compliance reviews to ensure legal adherence
• Assess project feasibility and market potential to protect investors
• Organize fundraising activities, providing technical platforms and marketing support
• Assume some reputation risk if issues arise with projects

Because the exchange’s reputation is linked to the projects it lists, its review process tends to be strict. No exchange wants to damage its brand by listing fraudulent projects.

The Commitment of the Project Team

Project teams need to:

• Develop real, usable products or services, not just promises on paper
• Provide transparent financial reports and project updates
• Follow through on their roadmap and meet milestones
• Use funds responsibly to create value for investors

This mutual check-and-balance ensures higher project quality compared to other fundraising methods.

The Five Major Attractions of IEO for Investors

For investors interested in participating in crypto but concerned about risks, IEO offers several key advantages.

Dual Assurance of Safety and Trust

The biggest benefit of IEOs is the endorsement by the exchange. Before listing, the exchange conducts strict due diligence, evaluating project compliance and viability. This review process essentially helps investors do their homework. Compared to the “self-reliance” of ICOs, IEOs provide a relatively trustworthy screening mechanism.

Of course, this doesn’t mean IEOs are risk-free — just that risks are more manageable.

Convenience of Immediate Trading Participation

In the IEO model, investors don’t need to visit project websites, download special wallets, or perform complex token transfers. Everything is done within the familiar exchange interface. After fundraising ends, tokens are immediately listed for trading, allowing investors to quickly access liquidity instead of being stuck with untradeable tokens.

Clear Regulatory Compliance Promise

Exchanges hosting IEOs are usually subject to strict regulatory constraints, complying with KYC (Know Your Customer) and AML (Anti-Money Laundering) rules. This means the entire fundraising process operates within a legal framework, providing investors with institutional protections.

Quality Assurance of Selected Projects

Since exchanges are responsible for the projects they list, only those meeting certain quality standards are chosen. This “best of the best” mechanism helps investors avoid the worst projects. Of course, being selected doesn’t guarantee success — but it does eliminate obvious scams.

Global Market Attention

Major exchanges have a worldwide user base, so an IEO project can attract investors from around the globe. This broad market attention often translates into higher trading volumes and price support, benefiting early investors.

How to Properly Participate in IEO: Practical Investor Guide

If you want to participate in an IEO, these steps are essential.

Establish and Complete Account Verification

First, open an account on the hosting exchange. This requires completing KYC verification, including submitting ID and address proof. Though seemingly cumbersome, this step protects your assets — ensuring your funds and account are in a regulated environment.

Verification usually takes 24 hours to several days, so don’t wait until the IEO start date to rush through it.

Deposit Necessary Funds

Next, deposit funds into your exchange wallet. Most IEOs accept mainstream cryptocurrencies, commonly Bitcoin (BTC) and Ethereum (ETH). Based on current market data, BTC is around $88.90K, ETH about $2.98K.

Ensure sufficient balance, considering quota limits, to secure participation.

Conduct a Comprehensive Evaluation of the IEO Project in Five Dimensions

Before investing, do your own research.

1. Deeply analyze the project fundamentals. Understand what problem it aims to solve, whether its solution is innovative, and if there’s genuine market demand. Read the white paper, but don’t blindly trust it — many failed projects have attractive white papers. Most importantly, verify the team’s background. Do team members have successful experience in related fields? Do their GitHub accounts show ongoing development?

2. Assess the exchange’s reputation. Different exchanges have varying standards for project approval. Choosing reputable exchanges with successful IEO track records can significantly reduce fraud risk.

3. Analyze tokenomics. This is often overlooked but critical. Check total supply, circulating supply, release schedule, and how many tokens the team holds. If the team holds a large portion and withholds releases, it could pressure the price after listing. Also, compare the IEO price to potential future market prices for reasonableness.

4. Evaluate market potential and competitive positioning. Who are the project’s competitors? What are its unique advantages? A truly viable project should have a clear niche.

5. Beware of red flags, such as lack of transparency, team members hiding identities, exaggerated goals without concrete plans, past involvement in failed projects, or avoiding regulatory questions. These are warning signs.

Common Traits of Successful IEO Projects

Looking at successful IEOs, they often share several features.

The Classic Success of BitTorrent

BitTorrent is arguably the most famous successful IEO. It raised $7.2 million within minutes on an exchange platform. The key reason is its massive existing user base — over 20 years of global operation, with millions of users. When the project announced a token launch, this ready-made audience translated into strong market demand.

This shows that projects with real user bases are more likely to succeed in IEOs than those with just an idea.

High Market Cap of Sui

The Sui project, mentioned earlier, also exemplifies success. It attracted nearly 250,000 users, indicating market excitement. Its current market cap of $5.26 billion reflects investor confidence in its long-term value.

Sui’s success stems from excellent technical fundamentals and launching the right solution at the right time — common factors in successful fundraising.

Patterns of Other Successful Projects

Other successful IEOs typically feature:

• Addressing real, existing market needs, not just raising funds
• Experienced, reputable teams
• Solid technical foundations and clear, feasible roadmaps
• Genuine community support, not just hype
• Timing the market appropriately for fundraising

Lessons from Failed IEO Cases

Not all IEOs succeed. Learning from failures is equally important.

Weak Project Fundamentals

Many failed IEOs had issues even before fundraising. Their value propositions were vague, technical solutions lacked competitiveness, or core concepts had logical flaws. Projects without real user demand, regardless of funds raised, often cannot sustain long-term.

Investors should remember: don’t be fooled by the amount raised; focus on intrinsic project value.

Lack of Transparency and Due Diligence

Some failed projects were found to drastically change plans after fundraising or had team backgrounds inconsistent with their claims. Others lacked transparency during operation, leaving investors clueless about fund usage.

Even with an IEO, exchanges can’t fully eliminate these risks. This underscores the importance of investors conducting thorough personal research.

Market Timing and Cycles

Launching an IEO in a bear market is much harder than in a bull market. Many projects launched during downturns, resulting in low participation and unmet fundraising goals. Even good projects can fail if the timing is off.

Regulatory Environment Changes

Some IEOs faced regulatory shifts post-launch, making continued operations impossible in certain regions. This highlights the need for projects and investors to stay alert to regulatory developments.

Risks Faced by IEO Investors

While safer than ICOs, IEOs are not risk-free.

Extreme Market Volatility

Post-listing, token prices can fluctuate wildly with market sentiment. Many projects see sharp declines within hours of listing. This volatility can cause significant losses, especially for late buyers chasing high prices.

Evolving Regulatory Risks

Global regulatory attitudes toward cryptocurrencies are still changing. Some jurisdictions may suddenly ban IEOs or restrict exchanges, creating unpredictable risks.

Liquidity Traps

Although generally better than other methods, liquidity isn’t guaranteed. Sometimes, trading volume after listing is low, making it hard to sell without slippage.

Project Execution Risks

Raising funds is just the start. Can the team deliver on promises? Will they attract and retain top talent? Will the market develop as expected? Many projects lose momentum after fundraising, becoming “zombie projects.”

Limitations of Exchange Due Diligence

Even strict exchange reviews have limits. Projects may hide risks or provide incomplete information. Investors should not rely solely on exchange vetting but must do their own homework.

Six Major Trends Shaping the Future of IEO

The IEO model itself continues to evolve. Key future trends include:

Gradual Improvement of Regulatory Frameworks

As markets mature, regulators are establishing better frameworks for IEOs. This may mean higher compliance standards but also greater legitimacy and stability. Institutional investors may become more involved, raising overall project quality.

Advances in Blockchain Technology

Progress in underlying blockchain tech will enable more complex and innovative tokenomics in future IEOs — such as conditional releases and dynamic fee mechanisms.

Geographical Expansion

Currently concentrated in developed crypto markets, IEOs are expected to expand into emerging markets, offering more diverse funding opportunities globally.

Tokenization of Real Assets

Future IEOs may extend beyond utility tokens to security tokens representing real assets — like real estate, commodities, or equity tokens — bridging traditional finance and crypto markets.

Integration of DeFi and CeFi

The boundaries between decentralized finance (DeFi) and centralized exchanges (CeFi) are blurring. Future IEOs might incorporate DeFi elements, such as liquidity mining, replacing traditional fixed-price issuance and offering new participation modes.

Innovative Hybrid Fundraising Models

We may see the emergence of hybrid models combining IEO, ICO, and Security Token Offerings (STO), creating more flexible and diverse project financing options.

Final Thoughts: The Present and Future of IEO

The overall outlook for IEOs in the crypto market remains optimistic. As global adoption increases, IEOs are expected to further integrate with traditional finance, potentially driving regulatory harmonization across regions. This convergence marks an important step toward mainstream acceptance.

While risks exist, IEOs also present significant opportunities, especially as markets mature. Investors should:

First, pursue thorough self-education. Understand how IEOs work, how to evaluate projects, and how to identify risks — these are prerequisites for participation.

Second, conduct strict due diligence. Don’t be swayed solely by marketing; deeply analyze technical fundamentals, team backgrounds, tokenomics, and community feedback.

Third, manage your risk by investing only what you can afford to lose, avoiding over-concentration, and maintaining a diversified portfolio.

Finally, stay calm and patient. Short-term market fluctuations often obscure long-term value. True opportunities tend to emerge from projects with deep understanding and solid fundamentals.

For investors seeking diversification in crypto, after proper risk management and rigorous research, IEOs can be a worthwhile area to explore. But remember: no investment is completely risk-free — including IEOs.