The Evolution of Crypto Capital Markets: Part 2
This is part two of our analysis on the emerging Initial Exchange Offering trend within crypto. In the first part of this analysis, we followed the progression of a radical new fundraising mechanism from initial coin offering (ICO) to initial exchange offering (IEO). The IEO boom of 2019 was a marked improvement on previous attempts to access the capital markets through the issuance of a digital token - at least from an investor standpoint. The IEO introduced higher levels of third-party due diligence, clearer documentation by issuing teams, and better incentive alignment across fundraise participants as early venture capitalists were no longer receiving massive pre-sale discounts. We also analyzed aggregate returns and found that despite massive spikes in the first week and sustained returns over the first 30 days, only a quarter of IEOs are currently up from their original offering price.
In this follow-up report, we take things one step further. We attempt to gauge the interest in trading these new tokens after their IEO, and evaluate the involvement of crypto funds in both initial sales and early trading. There is very little active trading volume for IEO tokens after their first 30 days of listing, and that which remains often appears to be a result of deliberate efforts to increase volume. In addition, nearly all participation from top crypto funds has been in a select few crowded investments. The result is a continuation of the adverse selection issues that also plagued later ICOs in late 2017 and 2018.
Pump up the volume
To assess how much trading activity occurs in a token post IEO, we looked at reported volume on exchanges deemed legitimate based off of Alameda Research’s criterion comparing hourly volume on the largest, most regulated exchanges. Typically when these exchanges see spikes in volume, it also trickles down to smaller exchanges. Conversely, when smaller exchanges see spikes at times when their larger counterparts do not, it usually points towards possible manipulated results.
We aggregated IEO market data across Bitfinex, Bittrex, Binance, OKEx, KuCoin, Huobi, and Gate.io to identify trends in trading volume from the time of launch. Similar to the price action, volume is high for the first week and then steadily declines over time.
