IEO Disillusionment: Who is Crashing the Market?
“The Initial Exchange Offering (IEO) may survive for one year as Binance’s unique fundraising model but it will die in months if more exchanges imitate which may overdraw the market confidence,” said a Chinese crypto enthusiast.
After the bursting of ICO (Initial Coin Offering) bubble, IEO becomes the latest twist on fundraising in the crypto world for several months with the world-leading exchange Binance being the spearhead.
However, as more and more crypto exchanges are scrambling for a piece of action, the dark side and potential risk of IEO starts to exist, the market is full of anxiety and disappointment.
Not every exchange can be called ‘Binance’
When we talking about high profitable IEO projects such as BitTorrent Token (BBT), we can see that every participant in this activity, including the project team, exchange, users and BNB holders are gaining plenty of money, but where does this money come from?
The answer with most consensus is that Binance’s listing fee becomes a “market capital management fund”. In addition to the selective high quality of the listing projects along with the limited and centralized issued tokens, all of which contributes an ideal model for market value management that boost the BBT price.
However, some small crypto exchanges use the “zero listing fee” to attract project teams, which means they have no initial fund. In addition, these exchanges do not have enough user, capital or market fame to support the token price after listing. As thus, tokens listing on these platforms are more likely to fall below its initial offer price.
Pressure of dumping
Many consider that in the IEO model, the exchange plays the main role and has nothing to do with the project itself. In fact, the project determines the performance of the IEO. Especially when some people are holding the lower-cost token.
Major exchanges have a higher ability to offer premium IEO tokens when there is massive lower-cost token in the market to ensure their users are still profitable after listing. However, small exchanges won’t have some much money to cover the dumping pressure after listing. Investors may lose their confidence when IEO token fall on debut.
Furthermore, high-quality blockchain projects are rare especially after a long bear market, some exchanges, including the major ones, list unsatisfied projects in order to make money under the new IEO model, which will harm the market a lot.