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Crypto exchanges are busy extending their reach to cater for Initial Exchange Offerings (IEOs). Binance was first to the party and Huobi is now following with its project lab Huobi Prime, a coin launch platform, which opens for business on March 26 to rival Binance’s Launchpad.
The first project, Silicon Valley-based messaging and communications services platform, TOP Network is already on board. It’s launching a coin to complement its services and has backing from investors including China-based Fenbushi Capital and California-based DHVC.
IEO’s are fast gaining popularity with exchanges and project developers. They rely on an exchange (or set of exchanges) to sell a new project’s tokens, and are a viable alternative to Security Token Offerings (STOs), which is a type of token that’s regulated by financial authorities, and as such, attractive to institutional investors. STOs are also limited to accredited investors, while IEOs aren't, although exchanges like Huobi and Binance do, regularly perform KYC and AML (Know Your Customer and Anti-Money-Laundering) checks on customers.
IEOs have plenty of other advantages: an exchange can tap into its user base; the standards for due diligence (we hope) are higher, and the project gets an immediate listing on an exchange, creating liquidity.
The model definitely passed muster when blockchain-based AI infrastructure startup Fetch.AI recently completed an IEO on the Binance exchange, raising $6 million in 22 seconds.
In its post detailing the announcement, Huobi says crypto traders and other users will have easy access to the new tokens: “Generally speaking, all they need is a fully verified Huobi Global account and an average monthly holding of 500 or more Huobi Tokens.”
Huobi Prime is “designed not just for the deep pocketed and well connected but also for ordinary retail traders.” However, “individual purchases made through Huobi Prime cannot exceed the equivalent of $1,000 USD in Huobi Token.”
Huobi says it’s launching its new platform to meet growing customer demand. “We’ve designed it from the ground up to be a more innovative, direct, and responsive way to access up-and-coming, new tokens,” says Leon Li, Huobi Group Founder and CEO, in the blog post.
Huobi says that listings on its platform will involve three rounds of coin offerings—to incentivize early investment—and will last for 30 minutes per round, with the price cap rising in each subsequent round. Price caps will vary depending on the coin offered and the coins generated by the sale will be available to trade soon after purchase against the Huobi Token.
Other exchanges are gearing up to follow Binance, and now, Huobi’s lead. Bittrex recently launched a similar token offering platform and we expect more to follow. Exchanges are fast evolving their services to offer launch and post launch facilities to help keep them at the forefront of the ever-changing digital asset marketplace. While the days anyone with a white paper being able to raise millions are past us, the race to build walled gardens for tokens to be created, bought and sold is just beginning.