Initial Exchange Offering: It's Dis-advantages In The Cryptoecosystem

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Hello fam,

It is your favourite blogger @mato445 and I am happy to make this interesting post in this community today.

Today we shall be learning about a very interesting topic in the cryptospace.

The concept of Initial exchange offering is not new to us in the community, as it is very much like Initial coin offering.

For Initial exchange offering, the whole operation is being hosted on an exchange, and now we will be learning about the dis-advantages of Initial exchange offering, please stay tuned.

DIS-ADVANTAGES OF INITIAL EXCHANGE OFFERING

Initial exchange offering has brought so much advantages and Improvement to the cryptospace but it is not without dis-advantages, and we shall be discussing some of it's dis-advantages now.

• LACK OF DECENTRALIZATION:

One of the dis-advantages of Initial exchange offering is it's potential for lack of decentralization.

Initial exchange offering is quite different from ico where there's a direct sale of token from the project to investors, while IEO has to do with the involvement of a third-party exchange, operating as an intermediary.

The overall decentralization of the project is being questioned by this centralized nature, as the exchange becomes very important in the fundraising process.

If too much influence is wielded by the exchange, the intended decentralized nature of the blockchain may be compromised.

• EXCHANGE SECURITY BREACH:

Another dis-advantage of IEO is the potential for breach of security of the exchange.

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The IEO often introduces an element of trust in the exchange hosting the sale of the token.

Here investors are dependent on the security measures and reputation of the chosen exchange, as they trust the platform to handle their funds aright.

Over the years, security breaches and hacks have been experienced by exchanges which resulted to significant losses for it's users.

This total reliance on exchanges for fundraising becomes a challenge and adds a layer of risks that may be absent in other fundraising method such as ICO (Initial coin offering) or STO(security token offering)

• POTENTIAL FOR MARKET MANIPULATION:

The potential for market manipulation is another dis-advantage of Initial exchange offering.

Since the exchange has an active involvement in the token sale, there stand a risk of collusion between exchange and the project team to create a misleading sense of demand or artificially inflate the token price.

This manipulation can result to damage in the credibility of the entire fundraising model or bring a huge harm to unsuspecting investors.

• EXCLUSIVITY OF IEO:

Another dis-advantage of Initial exchange offering is its exclusive nature.

The exclusivity of IEO can function both as an advantage and as a dis-advantage.

Although the exclusivity of IEO provides the project a platform to get to a broader audience, it also creates barriers to entry.

Users who lack connection to major exchanges or the smaller project may find it a challenge to be a participant of an IEO, thus posing a limit to their fundraising option.

This exclusivity can be a contributing factor to an inclusive and less diverse ecosystem, thus benefiting well established projects over emerging ones.

• HIGH LISTING FEE:

Another dis-advantage of Initial exchange offering is it's high listing fee.

IEO is most oftentimes accompanied with a high listing fee which further complicates the fundraising process.

Inorder to secure a listing on a reputable exchange, a project would need to allocate a huge portion of their funds, thus diverting funds that would be very useful for marketing and development.

Smaller project may be hindered by this financial barrier from participating in IEO, further buttressing the issue of exclusivity.

• VOLATILITY:

Another dis-advantage of IEO is volatility, Initial exchange offering are vulnerable to market volatility.

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Immediately after the Initial listing, token prices can experience a drastic and rapid price flunctuation, thus having impacts on investors who have been participants of the IEO, and who expects a stable investment.

This market volatility can result to loss of assets for market participants.

CONCLUSION

Although Initial exchange offering comes with lots of advantages in the cryptospace like increased visibility and a streamlined token sale process, they also come with some dis-advantages .

Some of it's challenges includes reliance on exchanges, decentralization, high listing fee etc.