The Initial Exchange Offering model on crowdfunding can be more problematic than initially thought. This is a conclusion form the ongoing Matic Network IEO on Binance. The prices went down a whopping 80 percent in the past day of trading eventually rebounding to about 50%.
IEOs came about to significantly mitigate the risks when dealing with ICOs. Instead of dealing with unreliable crowdfunding developers, investors could instead rely on more trustworthy exchanges like Binance to facilitate the process. IEOs also mean access to more investors and transparency because the partnering exchange conducts verification.
Problems with IEO Crowdfunding
Despite solving trust issues for the most part, pricing is still a contention for the exchanges. This is especially in the post IEO period. There are emergent problems as follows:
You still need to conduct your due diligence- IEOs may give you assurance that the project is not a fraudulent scheme. That said, there is still the lingering question of viability that is present in ICOs. Many would obviously be happy enough to ride the wave of an exchange’s endorsement but this does not directly correlate to meaning the project will be a success.
Minimum token holdings- this is a problem not only for investors who are locked out but also because of the artificial scarcity created. Accordingly, this can inflate the value of a native token and can be problematic for the long-term health of prices. For instance, the Matic IEO involved only people with at least $900’s worth of BNB to participate. Moreover, the individuals needed to have owned the tokens for at least 20 days. These all cause market distortions that are later reflected in the prices now.
Token supply issues- in general, IEOs are not necessarily a guarantee of lasting value for investors. Investors can therefore still ‘pump and dump’ tokens creating issues. The IEOs can be complicit in pumping asset prices in a way that is not reflective of market conditions.
The MATIC IEO
The Matic IEO with the facilitation of Binance is a text-book example of some of these issues. Notably, Matic is a platform that provides scalability solutions for Ethereum DApps. Binance recently explained this via a blog post on its site that:
‘Matic Network has been a significant contributor to the Ethereum ecosystem having worked on implementations of Plasma MVP (Minimum Viable Plasma), Wallet Connect protocol and the popular Ethereum event notification engine – Dagger.’
Matic did partner with Binance to conduct an IEO and made the next step in crowdfunding. These changes brought about investor confidence and a surge in prices. The problems with such inflation of asset prices have become apparent in this project as well.
Binance may have brought a significant amount of credibility as compared to a situation where Matic conducted an ICO. The fact that this comes about has no bearing on the actual sustainability of the Matic Network. This makes the price inconsistency in the past day or so come as no surprise. Alternatively, it could simply be an example of market correction. In general, IEOs can be replete with issues that some sweep under the carpet. Any investor should take special note of this development and still conduct personal research always before making investment decisions.