An initial exchange offering (IEO) is a token sale that a centralized crypto exchange runs for a project. The exchange reviews the project, sells the tokens to its own verified users and lists the token for trading after the sale. This guide covers how an IEO runs, what a project provides, how an exchange builds an IEO module and which rules apply.
What each party gets from an initial exchange offering
| Party | What it gets | What it takes on |
|---|---|---|
| Project | Access to the exchange's users and a market from the first day of trading | Review, fees or token allocations, and limits on marketing |
| Buyer | A project that the exchange has screened | Price risk after listing, as with any new token |
| Exchange | Fees, tokens and trading activity | Legal and reputational responsibility for what it sells |
Where IEOs came from
During the 2017 ICO boom, projects sold tokens from their own websites with little screening. Many of those projects failed, and some turned out to be frauds. Exchanges then offered a sale route in which the exchange screened projects first. The IEO wave started in January 2019, when Binance Launchpad ran the BitTorrent token sale. Other exchanges launched their own sale platforms soon after.
The models have changed since then. Some exchanges allocate tokens by lottery or by subscriptions based on what users already hold. In a "launchpool", users stake an existing token and receive the new token as a reward instead of buying it. Binance also runs "HODLer Airdrops", which give new tokens to users who held BNB in its savings products during a snapshot window.
IEO compared with other launch routes
| Route | Who runs the sale | Who checks buyers | Listing |
|---|---|---|---|
| ICO | The project | The project, if anyone | Not guaranteed |
| IEO | A centralized exchange | The exchange's KYC | On the exchange that ran the sale |
| IDO | Smart contracts on a launchpad | The launchpad's KYC, if any | On a decentralized exchange |
| STO | The issuer with regulated firms | Regulated firms | Regulated venues only |
The launchpad guide covers sales run by smart contracts, and the security token offering guide covers regulated securities sales.
How an IEO runs
- Application. The project sends its business plan, token design, team details, legal opinions and audit reports.
- Due diligence. The exchange reviews the team, the legal status of the token in each market, the smart contracts, the token supply and the vesting, and often asks for changes.
- Commercial terms. The parties agree on fees, tokens for the exchange or its users, marketing duties and market making after listing.
- Disclosure. The project, or in some EU cases the platform, prepares a white paper and risk warnings.
- Subscription period. Verified users who meet the rules commit funds, often under holding requirements, caps or a lottery.
- Allocation and distribution. The exchange credits tokens to users' accounts, sometimes with vesting.
- Listing. Trading opens on the exchange, and market makers provide the first liquidity.
What projects should expect
An IEO is neither cheap nor easy. The exchange examines the project in detail and takes a share of tokens or fees, requires liquidity and market makers after listing, and limits where the project may market the token. Before signing, a project asks the exchange these questions:
- In which countries do the exchange's users live?
- What share of sale buyers usually keep their tokens after listing?
- What does the exchange do if the token price falls sharply?
The exchange listing guide covers deals for a listing without a sale.
IEO development: building a module into an exchange
An exchange runs the sale inside its own internal accounts, so IEO development is mostly back-office and ledger work, not blockchain work. A typical module has five parts:
- Project workspace. Collects documents and tracks the due diligence review.
- Eligibility engine. Combines KYC level, residence rules and holding or staking requirements to decide who may join.
- Subscription and allocation logic. Supports fixed-price, pro-rata and lottery formats. The lottery uses randomness that an auditor can check, and the logic reconciles every allocation.
- Ledger integration. Locks committed funds, credits allocations and applies vesting.
- Disclosure management. Stores white papers, risk warnings and reports after the sale.
Many white-label exchange platforms include a launchpad module, and an operator checks that the module supports the eligibility rules its licenses require.
Regulatory points for an IEO
- Securities status. If a token is a security in a market, a sale there needs registration or an exemption, and the exchange may also need broker-dealer or similar permissions. The SEC's 2020 alert asked whether a platform that hosts an IEO acts as an exchange or a broker-dealer.
- MiCA in the EU. A public offer of most crypto-assets needs a white paper notified to a national authority. MiCA exempts small offers, such as offers to fewer than 150 people per member state or under €1 million over 12 months. Trading platforms have their own duties when they admit a token to trading. Marketing must match the white paper.
- Conflicts of interest. An exchange that holds tokens from a project it promotes must manage and disclose that conflict.
- Market integrity. Price support after listing by insiders or market makers can become market manipulation.
Frequently asked questions
Is an IEO safer for buyers than an ICO?
Usually somewhat safer, because the exchange screens projects and verifies buyers. The screening is no guarantee, and many IEO tokens have traded far below their sale price.
Can any exchange host an initial exchange offering?
Only within what its licenses allow. The exchange may only offer tokens that it can lawfully sell in its users' countries.
What is a launchpool?
A launchpool is a variant in which users stake an existing token for a period and receive the new token as a reward instead of buying it.
What does IEO development cost?
No public price list exists. The cost depends on whether the exchange buys a white-label module or builds one, and on how many sale formats and eligibility rules it needs. The ledger integration and the eligibility engine usually take the most work.