On Monday, April 1, the cryptocurrency exchange Exmo has conducted its first initial exchange offering (IEO). To participate, retail investors did not have to join any additional list ― tokens were simply sold on the Exmo trading platform for Bitcoins.
The funding cap of 100 Bitcoins has been reached in just 2 minutes after the IEO started, although the sale was intended to last for 3 days. As the Exmo representative Maria Stankevich told Newconomy, 870 purchase orders were placed in total.
The issuer was Paytomat. According to the official statement, it is infrastructure, allowing to set up systems for accepting cryptocurrency payments and connecting it to any other type of transaction (e.g. electronic money, bank transfers). Such a system lies somewhere between the existing blockchain networks and websites’ acquiring forms along with POS-systems.
One of the key factors for Exmo in choosing Paytomat to run a pilot IEO has become an already working service with the “huge” client base and live community, notes Stankevich. Moreover, the team was highly active in preparing the procedure from the very beginning. Exmo also took into account the project’s goal ― to “simplify the relationship between the crypto and fiat.”
Stankevich explained the initial success of the new IEO service:
“First, investors can be confident about the exchange’s reliability as a middleman. Second, the initial exchange offering guarantees that a token will be listed, usually in a few hours or days after the sale is concluded. Last but not least, IEO saves investors from unnecessary actions. For instance, any user could deposit fiat funds to our exchange with a banking card, swap it for Bitcoin or Ethereum, and then wait for the sale to begin.”
After the Paytomat’s success, Exmo administration noticed a sharp increase of companies that want to go IEO. Before the Paytomat case, Exmo chose between about 5 projects, but after the IEO the exchange has received over 50 requests.
Binance as IEO Trendsetter
The IEO approach has become a widely discussed topic after the initial success of IEO service, rolled out in 2017 by the leading crypto exchange Binance. First projects to hold tokensales on the service dubbed Launchpad were BREAD ($6 million raised) and GIFTO ($3.4 million).
At the end of January this year, Launchpad has seen the sale of BitTorrent tokens. Although it concluded successfully in general ― the $7.2 million investment cap was reached in less than half an hour ― the Binance team was hit by criticism amid technical issues. Many investors faced the inability to acquire BitTorrent coins due to the various interface malfunctions. Binance could do nothing but admit the issue, calling a sharp influx of website visitors the reason.
These issues manifested once again on the next IEO, organized by the Fetch.AI on February 25 this year, which according to the website aims at building “a decentralized digital world in which useful economic activity takes place.” Nevertheless, the company succeeded to attract required $6 million in 22 seconds.
Head of Binance Changpeng Zhao could not ignore this trouble anymore. He commented, saying that almost 20 thousand people placed orders for purchase, but a little bit more than 2,700 participants made it to the end.
The situation repeated during the latest tokensale, conducted by Celer company. And, again, Changpeng complained about too many participants, saying that 39 thousand users tried to buy, but only 3,100 “got some”.
Minor Problem Solved
Binance seems to have found the solution for their recurring issue of “purchase queue overflow” ― by turning a tokensale into a lottery. The new system is claimed to be conducted “via a transparent, randomized system with a random selection of lottery tickets based on tail digits.”
The number of tickets available to the user will depend on the number of BNB coins in his possession, with 1 ticket counting for every 100 BNB and a maximum of 5 tickets per account. Users will be able to claim tickets based on their BNB holdings over the 20 days leading up to the lottery draw date.
Binance pledges to set the maximum number of potential lottery ticket winners for each project and the allocation amount corresponding to each winning ticket in advance.
The first tokensale to be conducted as the lottery is Matic, planned for April 24.
Bigger Question Rises
In the first quarter of 2019, blockchain startups have raised around $17 million in total through the Binance Launchpad. Meanwhile, recently The Wall Street Journal has reported that the ICO funding was the record low in the first quarter, barely exceeding $118 million, compared to the $6.8 billion for the same period in 2018.
The results of Binance inspired other major crypto exchanges to follow the path. Thus, the beginning of 2019 was marked by numerous launches of IEO services from platforms like Huobi, OKEx, Bittrex, Coineal, KuCoin, Coinbene, and many others, not to mention several standalone platforms.
Still, one rotten apple spoils the whole barrel. The IEO approach essentially adds the third side between a project and an investor. But isn’t the elimination of intermediaries a decisive advantage of cryptocurrencies over legacy systems?
Interaction without a middleman had to make a whole system stronger. After a while, the crypto industry faced reality ― the lack of trust and ubiquitous fraud. The history shows that even the most trusted entity may fail at some point.
An intermediary revival can make the system fragile. In March, Bittrex has canceled its first token sale just 15 minutes before the start, because the administration came to understand that the project they were about to offer could be fraudulent. Truth be told, on April 2 the exchange has held its first ― and successful after all ― IEO, which was concluded in only 10 seconds.
How much retail investors will be confident about crypto exchanges as trusted entities, we still have to learn.