A Simple Explanation and Comparison Between IEO, STO, and ICO

Akshara

Akshara

Hey, This is Akshara Singh, Crypto Writer at Coinsclone. I have a great passion towards Cryptocurrency & Blockchain and love to share my ideas through impeccable content. If you don't find me involved in writing, I will be a great bookworm.

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Crowdfunding is one of the best ways to raise your funds quickly in the crypto industry. Fundraising and crowdfunding strategies are more popular in recent years. When new blockchain projects enter the market, startups can kick start easily. At the initial stage of crowdfunding, ICO’s were more popular in the crypto industry. Around $6.2 billion raised from 875 ICO blockchain projects. Also, the most interesting fact is, between December 2017 and January 2018, the price of cryptocurrencies raised to peak in the market.

However, most of the ICO projects are found as scams, this resulted in the depreciation of invested money by many investors and business people. To overcome these drawbacks and to take the fundraising next level, STO and IEO entered into the crypto industry. Most of the startups believed IEO will be a secure way to raise the funds. STO entered the market only for the security token sales to raise the funds.

Now let us have a brief look at the difference between these crowdfunding platforms.

What is an ICO?

ICO is the Initial Coin Offering, which is a token sale platform to raise the funds. ICO is one of the crowdfunding strategies used by most of the startups and entrepreneurs. Even small companies adapted the ICO website to raise their funds. When a new crypto coin or token is released, the issuer tries to sell coins to the buyers using some marketing strategies. After the active purchase of the crypto coins, the issuer may list the coin in the exchange. The coin will not have any proper value unless it gets listed on the crypto exchange platform.

(image source: towards data science)

Some experts in crypto space say that ICO is similar to IPO(Initial Public Offering). But ICO doesn’t have any assets to peg with them. So it totally differs from an IPO. The major problem in Initial Coin Offering is they are not monitored properly. Also, any individual can launch a project with white paper on the ICO website and grab the attention of the investors towards their company.

Pros:

    • No government intervention.
    • Launching cost is low.
    • Anyone can easily participate.
    • Investors have full control of their funds.

Cons:

    • Possibility of scams and fraudulent activities.
    • Users are responsible for the coins they purchase.
    • High risks involved.

 

What is an IEO?

IEO is the Initial Exchange Offering and it entered into the market as a new fundraising platform for startups. IEO is similar to ICO websites but has few differences. ICO websites are built by startups or any other developers. But IEO can be created only by the cryptocurrency exchange websites.

(image source: the blockchain land)

If you want to participate in IEO, then you must be a user in that crypto exchange platform. It also acts as a token sale platform and a secured crowdfunding platform for enterprises. Experts in crypto space say that IEO is the evolution of ICO. in this platform, there will be less contribution to smart contracts. So most of the people enable the IEO module.

Some people started a crypto exchange with the integration of the IEO module by using the premium bitcoin exchange software. Here both the token issuer and exchange owner will be benefited. Also, the exchange owner can gain additional profits by integrating the IEO module.

Pros:

    • Tokens are listed by the exchange and traded immediately after the token sale.
    • No possibility of scammed tokens and fraudulent activities.
    • If you have a verified user account in a cryptocurrency exchange, you can easily participate in IEO.
    • Less marketing capital required.

Cons:

    • Listed tokens are still utility tokens and are not backed by any real-time assets.
    • No guarantee for the token price fluctuations in IEO.

 

What is STO?

STO is the security token offering and it came into the industry to replace the ICO. STO is also considered to be a fundraising platform, where the token sales will take place. In ICO’s and IEO’s, only the utility tokens will be present. but here only the security token will be sold to the various users. Here security tokens are developed by real-time assets and contain all the ownership information. It provides high security to investors and reduces the risk of token issuers.

(image source: the good men project)

 

Pros:

    • Tokens backed by real-time assets have huge value
    • No scammed tokens and fraudulent activities.
    • Suitable for long term investment

Cons:

    • Complex to execute
    • Cost-effective
    • You need to wait until the token listed in exchange for trading.

 

ICO vs IEO vs STO

 

 

ICO

IEO

STO

Trust

Low

High

Very High

Target

Targets everyone

Targets crypto exchange users

Every individual who are waiting to buy security tokens

Marketing & advertising

The project team will do marketing and advertising

Exchange owners will do marketing

A team behind the project will perform marketing

Transaction

Transaction happens in the issuer website

Transaction happens in the exchange website

Transaction Happens in STO website

Security

Low

High

High

Liquidity

Medium

High

High

Administrator

No administrator

Exchange owner

Security token issuer/exchange

Fundraising cost

Low

Medium

High

Difficulty to set up

Easy

Medium

Hard

 

Which one is the best ICO or IEO or STO?

Each investor should check their ability before choosing one of these crowdfunding methods. ICO is cheap for investment. IEO is good for security and investment opportunities. STO is better for larger investors and for high-end security facilities. Each crowdfunding model has its own highlights. So the decision is based on the investor.

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