Initial Exchange Offering(IEO) Explained

After the craze of ICOs subsided, two new crypto crowdfunding methods emerged, namely the Security Token Offering (STO) and the Initial Exchange Offering (IEO). Among the two, IEO is more popular as STO poses a higher barrier of entry, is more expensive, and is subjected to more stringent regulations by the securities commission.

In a recent article, Reuters reported that IEOs have raised $1.5 billion so far in 2019, compared with just $836 million raised from ICOs. A dozen of amazingly successful cases of IEOs have driven more project owners to embark on their own IEO journeys. Famous IEO cases include the sale of the BitT Torrent (BTT) token on the Binance Launchpad, raising $7 million in just the first 14 minutes of the sale opening. Veriblock did even better, raising $7 million in April through an IEO on the Bittrex exchange in just 10 seconds. A truly amazing feat! It is safe to say that IEO has taken over ICO as the preferred choice of fundraising in the cryptocurrency industry.

Based on the success of IEOs, E3hubs, the largest incubation hub in Southeast Asia, has also launched its IEO campaign on 21st October 2019 on a renowned trading platform, Dcoin. The main purpose of this IEO initiative is raising funds to develop a global digital economy platform that is powered by its native token, E3T. This platform will enable E3hubs entrepreneurs to perform all forms of economic activities that will create economic value that might contribute to a sizable percentage of a country’s GDP.

What is IEO?

According to Binance, an Initial Exchange Offering (IEO) is a fundraising campaign that is administered by a Crypto Exchange Platform.  An IEO allows investors to purchase a new cryptocurrency (or token) while raising funds for its crypto project. 

Though ICOs and IEOs both raise funds through token sales, the way they sell tokens is different. For ICOs, the project team themselves conduct the fundraising campaign. Meanwhile, IEO fundraising is conducted on a crypto Exchange platform, where the users of the Exchange can buy tokens with funds directly from their own exchange wallet. 

Advantages and disadvantages of IEO

Advantages

INCREASED INVESTOR CONFIDENCE

Investors are more confident in investing in IEO tokens as the project has to undergo stringent KYC/AML checks by the Exchange platform that handles the IEO projects. The Exchange platform will also evaluate the business model of the project and also audit its technical infrastructure, including its blockchain system and smart contracts. Therefore, many scam projects will be filtered and eliminated. The Exchange platform acts as a trusted third party that can reduce considerable risk in crypto investment.

WIN-WIN FOR THE PROJECT OWNER AND THE EXCHANGE

For the project owner, it is a cheaper and easier way to raise the necessary funds for the project, while not embarking on long marketing campaigns and roadshows. The token is also listed on the Exchange immediately after the IEO campaign.

For the Exchange, conducting an IEO means more revenue for them. An Exchange that hosts an IEO will typically charge a fee for the campaign and get a cut from the token sales. They also get fees when the token starts trading on their exchange.

Disadvantages of IEO

AMBIGUOUS REGULATIONS AND RESTRICTIONS

Many countries still ban or restrict fundraising activity in the cryptocurrency industry while some countries impose stringent regulations on crypto activities. Therefore, it is still uncertain whether IEO will be fully accepted and recognised as the legal way of fundraising in the crypto industry.

ALL INVESTORS SUBJECTED TO STRINGENT AML/KYC

While a stringent KYC/AML check for the project can increase investor confidence, some individuals may be reluctant to expose their identities, so going through a stringent AML/KYC procedure may deter these people from investing in the IEO project.

LIMITED NUMBER OF TOKENS

There have been many complaints from investors that not everyone manages to purchase tokens during IEOs as the number of tokens available for sale is usually limited.

BOTTING CONCERNS

Using bots for trading and investing is ubiquitous nowadays. In the crypto space, there are concerns about bots that can be programmed to participate in IEOs and beat out human investors. In such a scenario, all parties lose out.

How to Conduct an IEO?

Although an IEO is a promising method for fundraising, especially for startups that don’t have the resources and expertise to do an IPO, it is by no means an easy feat. The project owner needs to plan and make the necessary preparations before embarking on the IEO initiative. The following are suggested steps that a project has to follow before going IEO.

DESIGN THE BUSINESS MODEL

Before embarking on an IEO campaign, the founding members of the project must have a clear vision of what their business wants to achieve. They also have to design a business model and draw up plans to attain the vision.

For instance, the vision of the E3T project is to build the world’s largest digital platform for global entrepreneurs, which has the potential to create a vibrant token economy for the E3hubs closed-loop ecosystem. The business model is to create a blockchain-based utility token that will power the E3 digital platform for entrepreneurs, enabling them to perform all forms of economic activities that will create huge economic value.

ASSEMBLE A FORMIDABLE TEAM

In this internet era where information is readily available, potential investors and Exchanges will know instantly the background of the project team members. If the project team comprises mostly inexperienced people, it will seriously affect the confidence of the investors and the Exchanges. Therefore, the project owner needs to assemble a formidable team that comprises experts in business, legal, technology, marketing, and other related disciplines. As most IEO projects are blockchain-based, it is a must to hire blockchain experts. You can check out the E3T team for reference.

PREPARING THE WHITEPAPER AND OTHER DOCUMENTS

The whitepaper is a document that comprises a thorough description of the project, distribution of tokens, business model, tokenomics and more. It also includes information about the project team which usually comprises the board members, the marketing team, the technical team, the legal team, and the advisers.

Writing the whitepaper is a very important step in the IEO campaign. It is an important document that showcases the project. Whether the investors will be impressed and looking forward to investing in the project depends on how well the paper is written. I will not discuss how to write a whitepaper here, but you can check out the E3T white paper.

Besides the whitepaper, the project team should also prepare a one-pager, website, pitch decks, social media pages and more. These are the components that contain the primary source of knowledge about the project for potential investors and Exchanges to evaluate the IEO project.

DEVELOP THE TOKEN

The token is an integral part of the IEO project. Without a native token, what can you sell to the investors? Therefore, it is crucial to design the token from day 1, and start developing it as soon as possible.

Most tokens for IEO projects are ERC20 tokens. The ERC20 standard is chosen because it can be easily designed and deployed to the Ethereum main net. However, if you want a customized token and your team has the expertise and programming skill, you can develop a different protocol from the Ethereum main net, or even develop your own blockchain system.

E3T is an example of a customized utility token which is not an ERC20 token and its blockchain system is also different from the Ethereum main net. E3T blockchain was designed to be a private blockchain network using the Proof of Authority (POA) consensus algorithm. In contrast, the Ethereum main net is using the Proof of Work (PoW) consensus algorithm. E3T has no miners. Instead, the transactions are validated by a finite set of validator nodes and masternodes. For more details, refer to the E3T technical whitepaper.

To mint the ERC20 token, the blockchain developers need to write a robust smart contract and have it tested and also audited by a trusted third party contract auditor to ensure the contract is secure and free of bugs. The audited token can then be deployed to the Ethereum main net or a private network.

MARKETING

The project team needs to carry out an aggressive marketing campaign for its IEO initiative in order to broadcast the news to as many investors as possible. The marketing campaign can be conducted through websites, blogs, as well as social media platforms such as Facebook, Twitter, WhatsApp, WeChat and more. They can also organise events and conferences to promote their token but they need to check whether these activities can be conducted in certain countries. For example, you cannot do so in Malaysia and China.

ENGAGE A CRYPTO EXCHANGE

The project team also needs to sign an agreement with a crypto Exchange to start their IEO campaign. They need to conduct due diligence in searching for a trusted Exchange before deciding to engage one. A good guide is to look for Exchanges that rank within the top 50 on Coinmarketcap. Besides, they need to analyze reviews of the Exchanges on various crypto platforms. IEO fees may also be another concern, as a top rank Exchange may charge an extremely high fee. Therefore, there is always a trade-off between the fee and the reputation of the Exchange.

Final Note

IEO has replaced ICO as the new trend in fundraising in the crypto industry. Investors who are still thinking of the good old days of ICO should start changing their mindset and focus on investing in IEO projects instead. On the other hand, startups or enterprises who wish to raise funds in the crypto industry must realize that ICO is already dead and IEO is the way to go. Lastly, more exchanges should create IEO launchpads to assist projects that wish to raise funds through IEO, as this is an untapped niche with immense potential. 

References

Developing an Ethereum Cryptocurrency on Windows

You can develop your very own cryptocurrency using your laptop that runs Windows operating system. This article a step by step guide for newbies to easily developing and deploying a token using the sample code provided by the Truffle framework. Truflle is a world-class development environment, testing framework and asset pipeline for blockchains using the Ethereum Virtual Machine (EVM).

This is a step-by-step guide for developing an Ethereum-based cryptocurrency on Windows.

To start the project, we need to set up a development environment with the following requirements:

  • A code editor
  • Source control
  • Unit tests
  • Debugging

For code editor, we use Visual Studio code for the following reasons:

  1. VS Code integrates very well with Git for source control. Git is currently the best choice for source control.
  2. VS Code works well with Truffle framework that manages unit tests.
  3. VS Code works well with Truffle for debugging

Besides that, Visual Studio code is a great tool for editing Solidity smart contracts and is available on Windows, Mac & Linux.

I. Installation of  the Packages

Step1: Install Chocolatey

Launch PowerShell as administrator. In PowerShell, enter the following command:

 
Set-ExecutionPolicy Bypass

*The Set-ExecutionPolicy changes the user preference for the Windows PowerShell execution policy.*Bypass-Nothing is blocked and there are no warnings or prompts. This execution policy is designed for configurations in which a Windows PowerShell script is built in to a a larger application or for configurations in which Windows PowerShell is the foundation for a program that has its own security model.
* Why Chocolatey-“You’ve never deployed software faster than you will with Chocolatey.” -Rob Reynolds. Chocolatey is a software management automation.

Install Chocolatey by entering the following code:

iex ((New-Object System.Net.WebClient).DownloadString('https://chocolatey.org/install.ps1'))

*https://chocolatey.org/docs/installation
*iex-invoke expression-The Invoke-Expression cmdlet evaluates or runs a specified string as a command and returns the results of the expression or command. Without Invoke-Expression, a string submitted at the command line would be returned (echoed) unchanged.

*A cmdlet (pronounced “command-let”) is a lightweight Windows PowerShell script that performs a single function.

* https://chocolatey.org/install.ps1 downloads the Chocolatey installation zip file, unzips it and continues the installation by running a scripts in the tools section of the package.

After installation completed, close and reopen PowerShell as administrator again.

Step 2 Install Visual Studio Code, Git and Node.js

Enter the following code in PowerShell:

choco install visualstudiocode -y 
choco install git -y  
choco install nodejs -y 

*Git (/ɡɪt/[7]) is a version control system for tracking changes in computer files and coordinating work on those files among multiple people. It is primarily used for source code management in software development,[8] but it can be used to keep track of changes in any set of files. As a distributed revision control system, it is aimed at speed, data integrity] and support for distributed, non-linear workflows.

*Node.js is a JavaScript runtime built on Chrome’s V8 JavaScript engine.

*As an asynchronous event driven JavaScript runtime, Node is designed to build scalable network applications. In programming, asynchronous events are those occurring independently of the main program flow. Asynchronous actions are actions executed in a non-blocking scheme, allowing the main program flow to continue processing

Close and reopen PowerShell before proceeding to the next step

Step 3 Install Truffle Framework

Truffle is a world class development environment, testing framework and asset pipeline for Ethereum, aiming to make life as an Ethereum developer easier

(https://truffleframework.com/docs). We use npm (Node Package Manager) to install Truffle Framework. Enter the following code:

npm install -g truffle

You can check the version of installed packages with the following code:

node -v 
npm -v  
truffle --version 

The output is as shown in Figure 1.

Figure 1

II. Configuring VS Code for Ethereum Blockchain Development

Step 1 Choose the folder for your project

Choose a folder you prefer for your project and enter the following code:

mkdir TruffleTest; cd TruffleTest; code .

The final command in the chain is “Code .”, which opens an instance of Visual Studio Code in the folder from which the command is executed.

Step 2  Install Solidity in the VS Code IDE

In the VS Code IDE, search for Solidity and install it

Step 3  Install  Material Icon Theme

In the VS Code , install Material Icon Theme

Now you have the VS integrated with PowerShell IDE for Ethereum Blockchain development.

III. Creating a Blockchain Application

We will create a sample cryptocurrency and a smart contract using the built-in sample MetaCoin in Truffle. Now, download the  files that can be compiled and deployed to a simulated blockchain using Truffle.

The code is

truffle unbox metacoin

The output should looks as shown in Figure 2.

Figure 2

After downloading Truffle metacoin, we should be able to view two important application files written in Solidity, MetaCoin.sol and ConvertLib.sol, in Figure 3.

* Solidity is a contract-oriented, high-level language for implementing smart contracts. It was influenced by C++, Python and JavaScript and is designed to target the Ethereum Virtual Machine (EVM).

*the Ethereum Virtual Machine is designed to serve as a runtime environment for smart contracts based on Ethereum.

Figure 3

These two files can be compiled and deployed to a simulated blockchain using Truffle.

To compile the smart contract, using the following command

truffle compile

*Or use truffle.cmd compile if there is error as shown in Figure 4.

Figure 4

*Source: https://ethereum.stackexchange.com/questions/21017/truffle-microsoft-jscript-runtime-error

After compilation completed, You will notice that a ‘build’ folder has been added to the list of files, which contains the compiled json files ConvertLib.json, MetaCoin.json, and Migrations.json, as shown in Figure 5.

Figure 5

IV Deploying the Contract

To deploy the contract, we shall migrate the contract  to a test network in truffle development environment.

The ‘develop’ command appears in  the Truffle development console environment. This will set up a kind of dummy blockchain, that operates similarly to the real Ethereum blockchain, and allows us to test deployment and execution of the code without needing to interface with an actual blockchain.

To compile the contract, key in the following command

truffle develop

This command will launch the truffle development environment, automatically configured with 10 accounts and keys. The output is as shown in Figure 6.

Figure 6

To deploy the compiled contract to the Truffle environment, enter the following command:

migrate

This will deploy the contracts to the test environment. The output is as shown in Figure 7.

Figure 7

To test the contract, enter the following command

test

You will see the output as shown in Figure 8.

Figure 8

To exit the Truffle console, type ctrl+D

To reenter the Truffle console, enter the following code

truffle develop 
migrate --reset  
test 

V Interacting with the contract with Web3

We have deployed and test the contract, now let’s do something with the contract. We will need to use the Web3 framework to interact with the smart contract on the Ethereum blockchain. Web3 is a JavaScript library which is bundled into the Truffle development console.

When the Truffle development console is started, it automatically configures 10 addresses, and assigns each of the addresses 100  Eth. You can check the ten available addresses by entering the following code:

web3.eth.accounts

The output is as shown in Figure 9.

Figure 9

You can display individual account using the following syntax

web3.eth.accounts[n]

For example, enter the following code to see the output

web3.eth.accounts[2]

The output is as shown in Figure 10.

Figure 10

Functions in the MetaCoin.sol file

There are four functions in the MetaCoin.sol file, as follows:

  • MetaCoin, the constructor. It is called when the contract is deployed.
  • sendCoin, for transferring coins between addresses.
  • getBalanceInEth, to convert between MetaCoins, and Ethereum.
  • getBalance, to show the balance in the requested address.

*  A constructor is a special method of a class or structure in object-oriented programming that initializes an object of that type. A constructor is an instance method that usually has the same name as the class, and can be used to set the values of the members of an object, either to default or to user-defined values.

The constructor MetaCoin comprises only one line

balances[tx.origin] = 10000;

*You can change this to any amount

This code initialises  the transaction to 10000 MetaCoin(Not Eth)

The initial address is

Web3.eth.accounts[0]

Checking Balance using the getBalance() method

You can check the balance of any account using the following code

web3.eth.getBalance(web3.eth.accounts[n]).toNumber()

Will display the balance in wei. To convert it to ether, you need to divide it by 10^18

You can use

web3.eth.getBalance(web3.eth.accounts[n]).toNumber()/1000000000000000000

Or

web3.fromWei(web3.eth.getBalance(web3.eth.accounts[n]),'ether').toNumber();

For example, to check the balance of account 0, enter the following code

web3.eth.getBalance(web3.eth.accounts[0]).toNumber() 

**The cryptocurrency generated by the getBalance function  is Wei

1 Ether =  1,000,000,000,000,000,000 Wei (1018) or 1 Wei=10^-18 Ether

The output is as shown in Figure 11.

Figure 11

To check the balance in Ether for account 0, enter the following command:

web3.fromWei(web3.eth.getBalance(web3.eth.accounts[0]),'ether').toNumber();

The output is as shown in Figure 12.

Figure 12

To check the balance of Web3.eth.accounts[0] in MetaCoin(not ether), use the following command:

MetaCoin.deployed().then(function(instance){return instance.getBalance.call(web3.eth.accounts[0]);}).then(function(value){return value.toNumber()});

The output is as shown in Figure 13.

Figure 13

The sendCoin Function

To send metacoin from account[0] to account[1], use the following command

MetaCoin.deployed().then(function(instance){return instance.sendCoin(web3.eth.accounts[1], 100);});

To send metacoin from account[m] to account[n], use the following command

MetaCoin.deployed().then(function(instance) { return instance.sendCoin(web3.eth.accounts[n], 10, {from:web3.eth.accounts[m]});})

Example

MetaCoin.deployed().then(function(instance) { return instance.sendCoin(web3.eth.accounts[1], 1000, {from: web3.eth.accounts[0]});})

The output is as shown in Figure 14.

Figure 14

The check whether the transaction is successful , we can check the balance of both accounts. (Note that this is the MetaCoin balance, NOT the Eth balance)

MetaCoin.deployed().then(function(instance){return instance.getBalance.call(web3.eth.accounts[0]);}).then(function(value){return value.toNumber()});

The output is as shown in Figure 15.

Figure 15

To convert MetaCoin to Ether, use the following code

MetaCoin.deployed().then(function(instance){return instance.getBalanceInEth.call(web3.eth.accounts[n]);}).then(function(value){return value.toNumber()});

Example

MetaCoin.deployed().then(function(instance){return instance.getBalanceInEth.call(web3.eth.accounts[0]);}).then(function(value){return value.toNumber()});

The output is as shown in Figure 16.

Figure 16

Debugging the Transaction

In the sendCoin() example,  a transaction has occurred on the blockchain. This transaction can be stepped through line by line, using the Truffle debugger. To do this , the Truffle debug command is used, passing in the transaction hash. This hash can be found in the console output following the sendCoin function call.

The command is

truffle(develop)> debug '0x4ca1828eb19679fbdd23722c62f11f2ddb4d3b3b229ffa7676bfaae924750ba6'

This will start the Truffle debugger. The instructions for interacting with the debugger are printed to the console, as shown in Figure 17.

Figure 17

You should start by adding a watch to the passed variables. do this by entering the following command:

+: receiver 
+: amount 

As you step through the code, the values passed into the function will be shown. Note, these are ‘undefined’ at the start of the function call.

You can press the enter key a few times to step through the code that was executed in this transaction. The output is as shown in Figure 18.

Figure 18


The debug commands can be used to inspect the variables, and add watched variables, as shown in Figure 19.

Figure 19

You can try to enter other commands.

Lastly, type quit to quit debugger

Deploying Your MetaCoin Contract with Truffle

Deploy to Ganache

Ganache is your personal Ethereum blockchain which is convenient for testing and interacting with your contracts during development. It ships with a helpful GUI that allows you to see available test accounts quickly, explore transactions, read logs, and see how much gas was consumed. Configure your truffle.js and truffle.config.js  for the Ganache network:

module.exports = {
  networks: {
    ganache: {
      host: "127.0.0.1",
      port: 7545,
      network_id: "*" // matching any id
    }
  }
};

Launch Ganache

In the Truffle console, enter the following command:

truffle migrate --network ganache

The output is as shown in Figure 20.

Figure 20

Ganache output is as shown in Figure 21.

Figure 21

Click transaction and compare the transaction hash. They are the same.

Figure 22

Deploy to Ropsten

Run a node connected to Ropsten and specify the address of the default (first) account to unlock. You will be prompted for a passphrase.

geth --unlock <account> --testnet --rpc --rpcapi eth,net,web3

Configuration for the Ropsten network:

module.exports = {
  networks: {
    ropsten: {
      host: "127.0.0.1",
      port: 8545,
      network_id: 3,
      gas: 4700000
    },
  }
};

Deploy to the Ropsten network:

truffle migrate --network ropsten

Deploy to Rinkeby

Rinkeby network is available only using geth client.

geth --unlock <account> --rinkeby --rpc --rpcapi eth,net,web3

Configuration for the Rinkeby network:

module.exports = {
 networks: {
   rinkeby: {
     host: "127.0.0.1",
     port: 8545,
     network_id: 4
   },
 }
};

Deploy to the Rinkeby network:

truffle migrate --network rinkeby