IEOs as Better Alternative to DAOs, ICOs, STOs

Several blockchain-based crowdfunding mechanisms including Decentralized Autonomous Organizations (DAOs), Initial Coin Offerings (ICOs) and Security Token Offerings (STOs) have been introduced in the last five years. Their pros and cons gave room to their successors though they all still co-exist as alternatives mainly on the Ethereum platform.

Words are now out from dApp founders, security engineers, data scientists etc in one of the series of behind-the-scenes stories about the state of the Ethereum ecosystem that Ethereum 2.0 is here and DAOs are coming back. It coincides with the growing popularity of Initial Exchange Offering (IEO) as the latest approach in the crowdfunding pursuit leaving open the question of which will eventually dominate the scene. 

Put together by ConsenSys, the blockchain venture production studio that builds dApps on Ethereum, the insight shared in the series forms a part of the company’s projected signs that “cryptospring is coming” supposedly after its winter season.

“Ethereum 2.0 is a thoughtful and elegant system that will usher in scalability at layer one, the base trust layer of Ethereum,” says Joseph Lubin, a co-founder of Ethereum and founder of ConsenSys in one of the series, “even as many technologies come online to enable scalability in transactional throughput at layer two. 2019 will be a breakthrough year for Ethereum scalability.”

DAOs (2016), ICOs and STOs (2017/2018)

The concept of DAOs came in 2016 to operate like entities using smart contracts to act like venture capital funds for the crypto and decentralized space. It gathered 12.7 million Ether (worth ~$150mln at the time) to be one of the industry’s biggest crowdfunds ever. They note that DAOs and other blockchain-based organization types are expected to see a resurgence especially as smart contract programming practices seem to have matured in recent years.

ICOs came before DAOs. The first token sales happened in 2014 with seven projects which raised $30 mln – Ethereum was one and the largest of them that year issuing over 50 million ethers to raise over $18 mln from the public. The DAO hack in 2016 helped cast aspersions on its future success and this shifted interest back to ICOs by 2017. The next 12 months afterward saw the total amount raised through the ICO mechanism reach a high of ~$27 bln – almost $20 bln in 201 and $7 bln in 2017.

By the end of 2018, as the “crypto winter” evolved, there was a shift from ICOs to STOs which are an advanced form of an ICO albeit with a more mature and regulated structure. STOs seek to keep the complex and differing crowdfunding system going even as various jurisdictions continue to pass crypto assets and tokenization laws at a global level. So far, the STO trend has not really caught up with the record set by ICOs due to its required time to be understood and its classification as securities which have to be fully regulated before being accepted in any country.

 

PwC ICO / STO Report 2019

IEOs (2019?)

Now falling between the various lines drawn by DAOs, ICOs and STOs are the tinkering with the idea of an IEO. Set to be reliant mainly on a working arrangement with a cryptocurrency exchange (or exchanges), it functions with developers minting a project’s tokens and sending them to an exchange(s) which will then sell the tokens to interested contributors for Ether.

This new experiment roots for a closed-circuit format of conducting token sales at it stands to bring about several benefits. Amongst others, it will expose or improve the standing of certain exchange(s) in the crypto market; it will cut-off new projects’ stressful effort to get listed on an exchange – which was a topical industry discussion in 2018; and it will enable exchanges to ensure regular trade/market movement irrespective of the industry’s macroeconomic trend.

Also, IEOs can help save the stakeholders – the users, project owners and exchanges – a huge unnecessary gas transfer charges and guarantee the authenticity of projects to an extent as the staked credibility of the parties involved has to be properly vetted from the onset.

Though the Ethereum platform continues to work on regaining its market dominance, the IEO concept is still new hence experimental. However, with top players like Bittrex joining to host its first IEO this month, what would become of this alternative crowdfunding model is worth a watch as innovative means are being deployed to determine how best to increase blockchain adoption globally.

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