The alternative crowdfunding solution for many crypto projects, initial exchange offerings or IEOs raised a whopping $1.7 billion in 2019, becoming the darling of the blockchain market in a matter of months. Similar to an initial coin offering (ICO), an IEO is a token sale that raises funds for new projects overseen by a new cryptocurrency exchange.
Interestingly, only four of the top 15 IEOs reported a positive return on investment and the Q4 of 2019 saw a lower number of projects and funds raised, leading many to think that year-end might be the end of initial exchange offerings. Yet, while many IEOs continue to struggle in 2020, a few remain active and continue to show positive results. What does the future hold for IEOs?
Taking a closer look
While initial exchange offerings can promote projects and expand the token holder community, their usefulness in terms of raising capital remains questionable.
According to the report from bigX digital asset exchange and SMC Capital, the average ROI of the top 15 initial exchange offerings was 18 percent, with Matic the strongest performing token by far, notching an ROI of 577 percent, according to Binance Launchpad. On the other end of the spectrum, MultiVAC at -92 percent and Veriblock at -94 percent had the worst results, as noted by KuCoin Spotlight and Bittrex.
In terms of launchpads, Binance was the most popular option for top performers: Eight of the top 15 IEOs were conducted on this platform. Its average ROI was 144 percent. LaToken was the most used in general, launching more than 140 IEOs in 2019.
Despite the sometimes dubious results of 2019, a few strong performers continue to make waves in 2020. WazirX, an exchange based in India, recently conducted a successful IEO on Binance, raising $2 million and delivering a positive 892 percent ROI to investors as of March 1, 2020.
Most IEO projects in 2019 came from the United States, Estonia, Singapore, South Korea, Hong Kong and the UK. These six countries accounted for more than 50 percent of all IEOs and raised $1.45 billion, about 85 percent of the total amount of funds raised.
More negatives than positives
Analysis of the 15 key IEOs revealed that nearly three-quarters – a full 74 percent – led to negative returns. While Matic, BitTorrent, Harmony and Gatechain Token reported positive results, the rest of the top 15 (VeriBlock, MultiVAC, Alive, Perlin, Fetch, Ocean Protocol, Celer Network, Band Protocol, Wink and Leo) all struggled with negative results. Most IEOs have not been able to keep the token price higher than the token sale.
The average loss for projects in the red is 53 percent while the average ROI for successful projects exceeds 200 percent. Projects reporting negative ROI have collectively raised well over $1 billion or 62 percent of all funds raised by IEOs.
Similar to ICOs, which once allowed startups to raise millions of dollars with no product or clear roadmap, many IEOs posted outstanding performance initially only to falter within months. Those that continue to succeed combine a good idea, a solid team, fundraising prowess, a vibrant community and a willingness to not move too fast.
“Our analysis shows that the IEO era of 2019 was more about speculation than actual startup development,” said Mo Ali, strategist for bigX. “As global markets focus on rebounding this year, many businesses will continue to look for new and creative sources of funds and growth. IEOs may work for some, and crypto lending companies may benefit as they help to underwrite new deals.”
While many in the industry thought IEOs were a better alternative to ICOs, there are ultimately not enough high-quality projects designed around products rather than acquiring and spending money. We expect to see fewer projects launched in 2020, but also anticipate better quality of new projects, preferably with a first round of venture capital backing.