Raising Funds with IEO’s – Risks and liabilities involved

 

After the collapse of ICO (Initial Coin Offering), IEO (Initial Exchange offering) have become quite popular in the cryptocurrency world. In IEO, the tokens are not directly sold to the investors. The tokens are listed on exchanges for the investor to buy. It was introduced to reduce the risks of fraud and scam, which was the reason for the downfall of ICO.

Parties Involved In IEO

Unlike ICO, there are three parties involved in IEO. They are as follows,

• Token Issuers: It is the issuing company who wants to raise money for their project. It can be a company or an individual. They have to list their tokens on exchanges so that the investors can buy the tokens and help raise funds required to start the project. Most of the projects are start-ups as there are no restrictions on raising funds.
• Exchanges: They are the link between token issuers and investors. In ICO, there are no exchanges. The exchanges list the tokens and help the issuer to raise money. Most of the work is done by exchanges. They receive listing fees in return. Exchanges make the whole process much safer for the investors and reduce the burden of the token issuers.
• Investors: Investor is those who buy the tokens which are listed on exchanges. The investors have to make the payment in the form of cryptocurrency. Investors prefer IEO, as it is safe and trustworthy. They have to fill in KYC forms with the exchanges in order to buy the tokens.

IEOs are trustworthy but not entirely safe. There are various risks and liabilities involved in raising funds with IEO.

Risks and Liabilities faced by the Token Issuer

Many people think the issuing company is always safe and less prone to risks, and it is still the investors who face scams and frauds. But in IEO, even the token issuer face various risks while raising funds. Some of the risks and liabilities faced by the token issuer are,

• Listing Fees: If you think you can simply list your tokens and get funds, you are absolutely wrong. The token issuer has to pay listing fees to the exchange in order to list the token. Sometimes when the project is unable to raise funds, the token issuer has to bear the loss of listing fees.
• Marketing Fees: The token issuer has to pay an additional marketing fee to receive IEO development services when they need additional marketing or consultation or  different IEO solutions. Sometimes when the project is unable to raise funds, the token issuer has to bear the loss of marketing fees.
• No Guarantee of success: Even though the exchange helps the token issuer in raising funds, there is no guarantee that the goal will be achieved. Exchanges don’t guarantee the success of the project. In the end, the token issuer is the one who will incur the loss.
• Regulation issues: IEO face various regulatory issues. It has evermore been a subject of deliberation. The token issuer has to be very careful while dealing with regulation as one slight slip up can lead to legal issues. Many people say that it will face the same regulatory issues faced by ICO.
• Hackers: Nothing is ever foolproof. Hacking is not a new thing in the cryptocurrency world. The fact that everything happens online put everything at a higher risk. Although it is difficult, hackers can still hack the system and commit theft. The issuer has to face the consequences in the end. 
• Legal Issues: In some countries, there are different laws pertaining to IEO, hence the issuer has to be very careful while targeting the market and audience. 

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