A number of cryptocurrency commentators have criticized the growing trend for Initial Exchange Offerings, or IEOs, as an alternative to the discredited ICO model, according to media reports.
First reported by Bloomberg this week, key voices from the blockchain community are becoming increasingly concerned with the tendency towards IEOs, amid a backdrop of declining activity in the ICO space.
IEOs see the exchange acting in the role of underwriter for token issues, both vetting and operating the sale on their own basis on behalf of investors. According to reports, the model has sprung from the ashes of ICOs, following increasing regulatory pressures against companies raising capital through token sales.
According to data on CoinSchedule.com some $180 million has been raised since February across 23 individual IEOs.
While the legal position for ICOs in some respects remains unclear, the position is even less clear for IEOs. And according to securities lawyers, IEOs are more likely to fall under securities regulations than their predecessor.
Zach Fallon, a lawyer who has worked with the SEC on ICO issues, said IEOs “take everything from an ICO and make it worse.”
Meanwhile, Jeff Dorman of Arca Funds said that by introducing intermediaries, IEOs were undermining the decentralized ethos of the technology. He told the news outlet, “The irony of course is that this is directly at odds with the decentralized ethos embedded in crypto, but this has been conveniently ignored as long as it’s working.”
This is compounded by concerns that exchanges have so far used IEOs to promote native tokens, and have in some cases required investors to hold large balances in native tokens to participate in sale events.
Fallon said this was even more likely to make IEOs fall within legal definitions of ‘securities,’ a factor which would cause further problems with regulators.
The IEO model was pioneered by global exchange giants Binance, which has since held a number of IEOs in support of the BitTorrent token and Fetch.AI. Similarly, Bittrex held its inaugural IEO in early April, after cancelling a scheduled sale in Malta the previous month over regulatory concerns.
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