The IEO will make the platform coins profitable, but will not let the bull market look back.
The recent emergence of the first exchange (IEO) has become a new phenomenon-level hotspot in the cryptocurrency market, attracting the interest of token issuers and investors, and at the same time attracting a comprehensive review.
The IEO is similar to the first token issue (ICO), but the difference is that the IEO is funded by the exchange itself. The IEO structure of each exchange may be slightly different, but there is little difference in the overall principle. In the middle of the exchange, the key investment bank underwriting function in the fundraising fundraising was carried out, and marketing, fundraising and token distribution were carried out. After the preliminary work is completed, the tokens of the relevant projects will be listed on the exchange. Of course, the above work of the exchange will also be paid accordingly, usually through the IEO currency.
In the beginning of 2019, the currency was promoted by the BitTorrent BTT to carry out the IEO, which opened the first opportunity for the IEO to quickly take the red wind. Numerous exchanges are competing to emulate and launch their own IEO projects, including Bittrex, Firecoin, KuCoin, OKEx, and more.
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IEO is an exciting new phenomenon, but people still have questions: Is it just a flash in the pan? People are also full of doubts about their market influence. In this article, I will focus on the major themes surrounding IEO and the implications of this phenomenon for the broader scope of the cryptocurrency market.
Opinion 1: IEO can help the exchange's platform coins accumulate huge value
(Declaration: I don’t own any platform coins from my own and the Blockchain Capital I work for)
Any analysis of the IEO should take into account the close intertwined relationship between the IEO currency and the exchange platform currency. For example, a trader holding a currency platform BNB enters the lottery, which means that you can buy the new currency issued by the investment coin Lauchpad platform. Investors with a BNB holding less than 100 coins are not eligible for lottery.
Ethereum token ETH in the wave of 2017 to 2018, the behind-the-scenes push is the outbreak of ICO in Ethereum. ETH has become the “reserve currency” in the ICO boom, as most projects carry out ICO by raising and holding ETH. This has led to a significant increase in demand for ETH. The number of ETHs circulating on the open market has plummeted, and ETH prices have soared. In January 2018, ETH once touched up to $1,300.
The exchange platform currency may also replicate this phenomenon. The lottery system of the coin security promoted the demand for the platform currency BNB. What is more important is that the currency lock system has slowed the liquidity of the BNB platform, because the lottery system of the currency is based on the traders in the past 20 days. BNB platform currency holdings.
In the next few months, I wouldn't be surprised if the BNB platform currency is popular with investors.
The architectural design of the IEO is born to create a panic that "fears not to go to the car." IEO may be one of the main drivers of the recent cryptocurrency market rally.
In the traditional securities market, IPO can become a very valuable indicator of market conditions. During the dot-com bubble period, the first day of IPOs often appeared to have a 50% increase, which led to more greedy investment and also promoted the startup to join the IPO army. The investment bank responsible for trading will often reserve a sum of money on the book to pull up the pull after the new IPO is listed. This has become the consistent operation of investment banks and has become one of the promoters of IPO companies.
The structure of the IEO is similar, and the parties have carefully designed mechanisms to drive up prices and motivate early investors. IEO financing is small, usually between $3 million and $10 million. Project valuations are also relatively conservative, typically between $50 million and $100 million, which is relatively conservative compared to previous financing.
By capping the valuation, only 6% of the token supply is sold, and the IEO can create a huge panic that “fears not to go to the car”, enticing buyers to flock. When the IEO token is publicly circulated, the previous valuation cap will bring a considerable rate of return to the token, often in multiples.
The data provided by Theblockcrypto.com shows that the IEO model has been quite successful to date. As transaction records increase and time prolongs, I personally expect IEO financing to expand.
IEO projects have sprung up, pushing the recent price increases of Bitcoin BTC and other alternative currencies, which is gratifying. After seeing the huge benefits of the early IEO project, investors began to enter the market to snap up other IEO projects, looking forward to replicating early success stories. There are reports that the new IEO tokens are sold out in less than 10 seconds, and investors believe this is a signal of potential demand in the market.
However, how much influence the IEO has on the recent cryptocurrency market movements is hard to tell. I suspect that the main driver of the market's rise is that a small number of big buys have affected the price, but there is no doubt that the IEO has played a certain role.
Generally speaking, the best quality projects will not be financed by IEO.
IEO plays two key roles: financing and trading on the exchange. The exchange has an extensive distribution network and a large user base, and can quickly access a large amount of capital. For the blockchain project that issues tokens, it is important to trade on a currency with good liquidity. It can guarantee the liquidity of the token, and usually brings some speculation and some positive Price manipulation initiatives.
However, if a project is fully capable of raising the expected amount of funds, they have no reason to make a substantial sum of money to allow the exchange to help finance. In addition, tokens for high-profile projects are very popular in the secondary market, and exchanges are willing to support these projects because they will bring a lot of liquidity.
There is a contrary view that IEO can guarantee that the project token will be traded on the exchange immediately, which will soon lead to the rise of the token, which will bring a short-term premium. A debut will bring great market enthusiasm. Although this argument makes sense, in the long run, the foundation of the value of the project tokens is the function and demand of the project, and the price of the moment can not guarantee a permanent bull market.
In the long run, IEO may not cause a bull market to turn back
The best IPO cases often open the door to a bull market that has been closed before. The IPO frenzy in the Nasdaq market in 1994 was the most famous representative, and it was the pioneering action of the early Internet industry. Similarly, in 2004, Google landed in the IPO market, bringing the second spring of technology stocks to the Nasdaq market after the dot-com bubble burst. Google's lucrative and large user base proves to the market that the Internet exists as a phenomenon of social, cultural and financial phenomena, and has not succumbed to the historical stage.
In 2017, Filecoin brought the same effect to the cryptocurrency market. Although Filecoin itself is still in the process of development, its token sales have been a huge success, raising a record $257 million at the time, with top VCs participating. More importantly, Filecoin's pioneering Future Token Simple Agreement (SAFT) template was followed by many projects that led to Telegram and EOS's massive ICO fundraising.
IEOs in the current architecture are unlikely to have similar influence.
“Top” projects are unlikely to be funded by IEOs, and they can complete capital raising on their own. Although the IEO's ingenious structure and limited token offerings are mainly for the return of its investors, the project's main reward is to raise as much money as possible with the highest possible valuation.
Despite the small-scale victory of the IEO project, whether the IEO can produce a large-scale speculation that really impacts the entire cryptocurrency market is not known.
If the project side has maintained good momentum with the help of the IEO, it can truly demonstrate the importance and influence of the IEO. Bittorrent tokens may be able to grow into revolutionary, widely used tokens, but this is currently not possible.
Don't expect too much from IEO
Simply put, IEO is a very interesting new phenomenon, but it is not revolutionary. They primarily replicate the architecture used in traditional capital markets over the past few decades. Although IEO projects may have given the cryptocurrency market a little momentum, they are unlikely to have the same magnitude of impact as ICO.
The most striking part of IEOs is how they affect the exchange platform currency mechanism.
The new mechanism for lottery has increased the demand for platform coins, resulting in a decrease in the amount of platform currency in the market. It may be like the ICO stimulating ETH in 2017, which will give the platform coins a wave of blood. The main influential effect of IEO should be to bring a wave of speculation to the platform currency, which will drive the price of the platform to rise, but the impact of IEO's single project is limited.
A simple psychological model that can be referenced is that, under the premise that the exchange such as the currency is limited to the amount of the winning supplier, the method of creating a lottery system with the highest possible expected value E(V) is created. A series of small-scale, successful and rewarding returns on token sales and sales generate expectations for the investment community, which is why a series of well-designed and heavily supported IEO projects have hit the exchange. The higher the expected value, the higher the price of the lottery threshold for participating in the investment.
IEO is an exciting new mechanism for fundraising that will attract a lot of attention, but it may also be limited to the smaller projects currently involved.
In addition, the decisive factor of the IEO model is not the quality of the project behind it, but the financial mechanism brought by the platform currency. By combining these functions, IEO can stimulate demand for the exchange platform and enhance its functionality, which may bring a stimulating effect to the platform price.
Encrypted ecological space does not lack financial mechanism, and IEO is a perfect application case.
Author: Derek Hsue, Blockchain Capital investment team members
Compile: Perry Wang
Source: Chain smell