A new Wall Street Journal market report is indicating that the initial coin offerings craze of 2017 might be restarting. However, this “ICO 2.0” craze could look a little bit different compared to the last one.
Are IEOs an “ICO 2.0” craze?
According to the Wall Street Journal piece by Steve Russolillo, the broad rebound in cryptocurrency prices could spike investments. Nevertheless, this new money-raising trend does not come from traditional ICOs. Rather, Russolillo claims that money is now, instead, mainly raised through “initial exchange offerings”.
Initial exchange offerings, or IEOs, act as intermediaries for investors. ICOs mainly work through a start-up offering a currency to investors, much like a mix of crowdfunding and traditional IPOs. In an IEO, crypto exchanges sell digital tokens directly to investors, instead of through a startup.
The director of Digital Currency Research at TradeBlock, John Todaro, says IEOs have raised $518 million just in 2019. As such, this new trend is rapidly raising large amounts of money.
Nevertheless, some are skeptical of IEOs. One common criticism is that this new type of investment form does not solve some of ICOs most prevalent problems. Rather, some note that these deals only give more power to mostly unregulated crypto exchanges.
What’s more, some of these exchanges have previously faced several problems. For example, issues relating to security, hacking attacks, fake trade volumes or outright fraud have been known to occur.
Will IEOs solve some of the problems with ICOs?
Michael Conn, one of the managing partners at the Los Angeles-based Quail Creek Ventures, said this is “like ICO 2.0”. In fact, he argued that the spike in IEOs could potentially have adverse effects on the market.
“Frauds are waiting to happen. A lot of people got burned in ICO land and I think a lot of people are going to get burned in IEO land.”
With that said, however, IEOs also present some opportunities. Namely, the fact that crypto exchanges are more responsible in the process also means they risk reputational damage.
In theory, this could make incentivize exchanges to scrutinize projects even more, in order to decide which ones are bad. Nonetheless, regulatory challenges mean that most IEOs have avoided the US so far.
For example, one only needs to look at how the Securities and Exchange Commission recently sued the Canadian messaging company Kik for its ICO to understand why US companies are avoiding IEOs.
However, the WSJ report notes that the rising trend of IEOs means they will likely continue to become even more common. As such, it will be interesting to see how regulators respond to the phenomenon.
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Rasmus Pihl is a writer for Toshi Times by day and an avid follower of the blockchain industry by night. Rasmus holds a Bachelor’s Degree in Marketing from the Gothenburg School of Business, Economics, and Law and runs a Swedish marketing consulting firm. Moreover, when he isn’t writing for Toshi Times, traveling, working or changing the world in some other capacity, Rasmus is more than likely caught up in postgraduate studies.