How Binance Launchpad is Reviving the IEO

From the early ICOs to the new wave of DeFi token offerings, the crypto industry has had no shortage of innovation when it comes to new fundraising mechanisms. One such iteration was the initial exchange offering (IEO) which saw its heyday in 2019. They were seen as a more trusted ICO since there was a baseline of due diligence into the project raising money. Additionally, the exchange would put its reputation on the line and perform some of the investment banking-like functions you would see in traditional markets such as valuing and syndicating the offering.

After a few successful raises, many exchanges quickly followed by launching an IEO platform of their own. Over the course of the year, there were over 250 raises, including some legitimate projects we see today but also many questionable projects that were simply capitalizing on an opportunity. As quickly as they burst onto the scene, IEOs died off just as fast with the market almost entirely drying up by the start of 2020.

Back from the Dead?

Many projects during the latest DeFi summer opted for some form of an initial DEX offering, if they even raised via a token sale at all. High profile teams such as Compound and Uniswap decided to forgo a sale in favor of liquidity mining. However, over the last few weeks, several teams have gone back to the seemingly dead IEO. These aren’t just any projects desperate to raise money either. Injective Protocol, Alpha Finance, and Axie Infinity have some of the biggest names in crypto investing backing them including Pantera, Multicoin Capital, and Delphi Digital, respectively. With this group of seasoned investors likely guiding them through this process, it’s no accident they settled on this form of fundraising.

A major reason why a team would choose to go with an IEO is price discovery. By working with a third-party to determine the valuation, it mirrors what an investment bank does when it helps a company go public. By deliberately setting what they believe to be a reasonable valuation, it helps prevent massive selloffs post listing. As you see below, the initial valuation of recent Binance IEOs were priced well below comparable protocols.

This process contrasts with the various flavors of more decentralized public sales that release a fixed number of tokens and let the market decide the valuation. While seemingly more democratic, it can cause issues when mispriced. We’ve seen this happen a number of times, particularly when there is only a small percentage of the total supply released.