Comment by Andriy Velykyy (business development director of Paytomat.com)
The original idea of Initial Exchange Offerings (IEO) is great – emerging companies that operate in crypto landscape obtained access to a new form of crowdfunding for their projects on a depressed market. However…
The investors on the other hand receive a promise of tokens being listed, and it is important to remember that a lot of ICO tokens have never been listed, thus their investors were never unable to retrieve their funds. Furthermore, being listed on a big exchange gives startups additional credibility, as it is implied that the exchange did some due diligence before the listing as opposed to numerous ICO exit scams where founders disappeared together with the money. Last but not least the obligation to perform KYC/AML checks, maintaining investor dashboard, etc. was transferred to exchanges themselves and even the road show, one of the costliest marketing activities, is no longer needed thus helping startups to significantly optimise their budgets.
Where things start to get trickier is exchanges emitting their own token and forcing customers to buy it in order to invest in IEOs.
Now from the exchanges perspective IEO is another way of attracting customers to their platform on a market that clearly lacks liquidity. As exchanges mostly benefit from the trade fees the more users are trading the better. Where things start to get trickier is exchanges emitting their own token and forcing customers to buy it in order to invest in IEOs.
While it is clear that for exchanges it is another point of revenue, it brings non-transparency to investor-company relations, doubling the volatility as price becomes dependent not only startup-token but on exchange token too. To make things even worse, exchanges start to force people to stake their tokens in order to participate in investment rounds based on a lottery principles which certainly don’t look like valid investment decisions and rather resembles a casino.
While it is clear that for exchanges it is another point of revenue, it brings non-transparency to investor-company relations, doubling the volatility
On 1st of April we have conducted an IEO round for Paytomat.com and raised its cap of 100 BTC within minutes. Prior to that we have provided the EXMO exchange all the information about our company, role of the token in our ecosystem, legal registration etc and shared it together with our community. No exchange token was involved in this operation, it was a sell wall of tokens on exchange with a fixed price.
We have explained to our community that we were doing this round as an angel/pre-seed to raise finances to support our team of developers while they enhance our existing products and develop new ones. Would we consider exchange offerings in the future? Maybe, because we operate in the CIS region where investment opportunities for technological startups are limited compared to Silicon Valley for example.