Evan Luthra is a “Top 30 Under 30” tech entrepreneur and blockchain expert recently published research made available to BSN that finds a major trend of companies moving towards the IEO model for funding. He and his company’s research is interesting in that it nakedly compares the performance of ICOs versus IEOs, and concludes that some companies are viewing the IEO as a perfectly legitimate funding tool.
IEO Model Becoming Increasingly Mainstream
Becoming reliant on the model for funding ultimately puts the industry in an awkward position, both with securities regulators and investors who are continually left holding empty bags.
Research finds that more than 65 IEOs have launched in the past six months, and the trend is only just ramping up, with normally reserved companies like Coinbase now flirting with the idea of offering the platform.
An IEO is essentially an ICO – or initial coin offering – with the backing of an exchange. Associating a token with an exchange immediately gives it a few things, good and bad. In one respect, it gives it liquidity, which is good – however, the “backing” also bestows the exchange with a degree of liability it will probably never rise to reckon with.
This being the case, many veterans of the industry are taking a more cautious approach to the burgeoning wave of “offerings” – or would they be better referred to as schemes?
According to Luthra, a perhaps more concerning trend is now emerging: companies are launching second rounds of token offerings, treating the model as a normal funding tool.
One company engaged in this trend is Roobee, who launched their third IEO on September 18th. Roobee.io is a blockchain investment platform which says it “uses AI and transparent statistics in order to help people make smart investments.”
Is this a problem? It really depends on what these tokens amount to for their holders.
The ICO craze left a lot of people with empty pockets.
Let’s not be crass, though. The warning signs were all there, and plenty of people spoke against the hopium and over-eager market, where any back-of-envelope math and half-legible (if not plagiarized) whitepaper could earn a skeleton crew of would-be entrepreneuers millions and millions of dollars.
Even if exchanges are backing the new products, that doesn’t mean the majority of them should be expected to follow a different path.
According to the research, the IEO model, to date, hasn’t been used nearly as much as the ICO model was. This could be due to lower participation in later sales – the STO or “security token offering” is a blip in a graph provided as part of the research.
IEOs Have A Long Way To Go Before Doing As Much Damage As ICOs // Source: El Group International
The main concern around the notion of the IEO is that many tokens offer both no utility and no inherent value. They entitle the holder to nothing, and they do nothing for the holder while he holds them.
They, are therefore, entirely speculative, which rarely makes a healthy market for too very long.
