A Lawyer's Perspective on IEO

[jlawlercal]

Are IEO's the best present solution for all parties? Or simply the lesser of evils?


https://www.linkedin.com/pulse/initial-exchange-offerings-lawyers-dilemma-1-josh-lawler

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[squatter]

How can exchanges and token issuers comply with Regulation S without physically locking the coins up? If these are blockchain tokens that can be withdrawn from exchanges, they will end up on secondary markets.

Bittrex launched IEOs on its international -- not US-facing -- site, presumably to block US residents from the offerings. I don't think those restrictions applied with offerings on Binance. Would that open Binance up to legal problems under US securities laws?

[CryptoBry]

Are IEO's the best present solution for all parties? Or simply the lesser of evils?

I would say that it is the latter -- the lesser evil -- compared to the usual ICOs which we experienced in 2017 and 2018. We have to acknowledge that indeed IEO is an improvement in fact a big jump ahead from the ICO days. However, nothing is perfect all because a project can still be accused of selling securities in USA. So the best solution is to make sure that one is not conducting business within USA and not to any USA citizen inside and outside of the said country and then make sure that no one also get into the secondary market within the 1-year provision period. But does IEO means it is safer for the investors who had seen so many scams and failed projects in the past? I think that is the harder part...and let's see in the coming years how the whole thing behaves.

[illyiller]

Are IEO's the best present solution for all parties? Or simply the lesser of evils?

I would say that it is the latter -- the lesser evil -- compared to the usual ICOs which we experienced in 2017 and 2018. We have to acknowledge that indeed IEO is an improvement in fact a big jump ahead from the ICO days.

Only in some ways. In other ways, there are major drawbacks for smaller investors.

The earliest ICOs were completely accessible. Today, IEOs are run with various barriers to entry. They also seem heavily slated towards algorithms/bot and likely institutional traders who immediately buy up the offering before little guys get a chance.

[carlfebz2]

Are IEO's the best present solution for all parties? Or simply the lesser of evils?

I would say that it is the latter -- the lesser evil -- compared to the usual ICOs which we experienced in 2017 and 2018. We have to acknowledge that indeed IEO is an improvement in fact a big jump ahead from the ICO days.

Only in some ways. In other ways, there are major drawbacks for smaller investors.

The earliest ICOs were completely accessible. Today, IEOs are run with various barriers to entry. They also seem heavily slated towards algorithms/bot and likely institutional traders who immediately buy up the offering before little guys get a chance.

There would always be a drawback which you had already mentioned.I do see that IEO is really much better than ICO's generally but the thing here is that it isnt really that easy for you to participate if you are just a small guy but if youre in luck then you might able to get through.This IEO might not be the same on giving out 1000x-5000x possible profits like
ICO's in the past but the profits given by IEO's are considerable.

[Harlot]

I couldn't say that this is a disadvantage for U.S. citizens even though they aren't allowed to participate in IEOs they are still legally allowed to buy it once it becomes available in exchanges in the buy and sell side. I do think that this is a better approach for any trader who wants to know the first movements after a token is launch via IEO, you see having been able to purchase it through initial offering is always a risk and there is no assurances that it will only go up once it is in the market.

[freedomgo]

It was clearly the solution, IEO help the market to grow again, it's just beginning and most probably we will see more growth this year.
Exchange would not allow IEO if they see big risk on it, as they will loss their business if they found violating a serious law.
Overall, this is a small move for the exchanges.

[Kemarit]

I wouldn't say it's the solution, but at least a good option for now. But clearly, IEO could also be easily manipulated, how many times have we heard that the sales was totally completed in matter of minutes? How is that possible? Unless you are a insider and has a deep pocket to go first in the line and uses trading bots to purchase as much as you want. I think exchanges should also tackle this issues. So for now it's the lesser of two evil but we will see.

[magneto]

Conducting an IEO in the United States, or selling to “U.S. Persons”[6] by way of an IEO, is almost certainly a violation of the Securities Act of 1933. Punishable by a host of draconian penalties.[7]

The fact that there are still a lot of uncertain regulation that surround these funding sources mean that most exchanges simply wouldn't risk offering this sort of service/product to countries like the US, as squatter stated. However, I wonder how exchanges plan on ensuring that US based customers have no way of accessing this? Mandatory KYC?

Fundamentally speaking though, IEOs are really not that different from the traditional token crowdfunds that we've seen. Apart from the fact that the token is almost guaranteed to have instant liquidity on a big exchange.

I certainly would not view it as 'safer', especially when you consider the fact that you may see more manipulation given that vapourware can be easily sold, essentially.

[fortunecrypto]

IEO makes it easier for investors to look if the project is legit and compliant because the exchange has done this for their investors, although there's no guaranty of high profit here because it will still come down to their platform and how the community react to their project, but it's much safer than ICO and no need to wait for months to get it traded in the market.

[freedomgo]

IEO makes it easier for investors to look if the project is legit and compliant because the exchange has done this for their investors,

Not all investors actually, if we speak of investing IEO in the most popular exchange, ordinary investor will not likely able to participate due to the big competition, and most likely big investors are given the chance to invest than the small time investors.

This has to change, and other exchanges have to step up competing so not only Binance will succeed.

[timerland]

I think that the general consensus is that IEOs do offer more liquidity as soon as the tokens launch, and that trading will likely go much more smoothly at least for the first few weeks given the fact that the team doesn't need to be worried about things like getting it listed on a market.

However, are there any legal advantages? I really don't think so.

There's a reason why exchanges operating with this type of model avoid countries with tight regulatory measures in crypto, because they know that even though IEO sounds like a different beast, it is really based on the same concept of IPOs, and they're not going to escape from pressure from authorities just by calling it an "exchange offering".

[buwaytress]

Don't know about the legal dilemma from that perspective, valid I suppose but here's what and how people see IEOs: they think that they're safe because they're investing in something that's supposed to check out legally.

But that's not at all the same as investing in something that's legitimate. And I'm talking about legitimacy of idea, of true intention.

By definition almost a commercial enterprise (which let's face it, is exactly what an offering is, whether it's ICO/IEO/STO) has one intention and one only, that is to make a profit. And if you're OK with that, and you're OK that all other purported ideals are just a screen, fine. You're good to go legally. Doesn't mean you're safe from getting scammed though.

[Questat]

IEO could be legal if it's done in fully complied exchange, we cannot deny that anything unregulated is very risky for investors, and though IEO is not the complete solution of investors to be confident but it's a major improve if ICO that causes a lot of scam in the crypto space.

One step at a time and we shall see this market continues to matured, and we are going to that positive output in the future.

[Schirer]

If the platform is trustworthy, do not fake volumes, do not fake raised amounts, then it is probably better than ICO.
In a lot of cases Lawyers are a bad choice in any TGE, just look at those guys who are selling their project on Ebay, they failed because they hired a lawyer , who told them not to do ICO.

[Tylev]

In any case, fundraising through exchanges is now the best way out of the current situation of falling popularity of ICO projects, which lost it mainly due to the high level of fraud among them.
However, IEO projects only slightly increase the level of security for investors by superficially checking projects with exchanges and only guarantee listing on this exchange. However, IEO projects still do not protect investors from fraud. A certain guarantee can only be given by state bodies that will subsequently register these projects and check its team for the possibility of such fraud.

[BullintheVard]

From ICOs to STOs, and now IEOs are new. And as a crypto-asset lawyer myself, i spend a large amount of thoughts regarding the legal side of IEOs, since at the moment, to the best of my knowledge, no national regulation or international effort is geared toward IEOs. The governments, institutions and organisations are still pre-occupied with ICOs and STOs. The fast blockchain technology revolution has left them behind once again, so that now there is yet another catching-up to do.  

[BullintheVard]

If the platform is trustworthy, do not fake volumes, do not fake raised amounts, then it is probably better than ICO.
In a lot of cases Lawyers are a bad choice in any TGE, just look at those guys who are selling their project on Ebay, they failed because they hired a lawyer , who told them not to do ICO.

Why'd you think "In a lot of cases Lawyers are a bad choice in any TGE"? Should a lawyer not advise their client to not do an ICO because of the bad reputation of, and exit scams in ICOs?

[carter34]

If the platform is trustworthy, do not fake volumes, do not fake raised amounts, then it is probably better than ICO.

We have also seen so many IEOs helping bounty hunters cash out stresslessly because they are mostly opening up as exchanges or they are focussed to sincerely get listed to an exchange.
Some starts trading already while still running an IEO, then this brings more confidence to investors to invest more.

In a lot of cases Lawyers are a bad choice in any TGE

I don't think legal advisers have a role to play in the failure of icos, icos where mostly scam intentionally because a large number of them never came to exchange.

[Flor1982]

IEO is much better than ICO but still the platform cannot be trusted as it could be use to scam people too like faking the volume and the total fund collected just to attract more people to invest then after that the project owners could be disappear without trace living the investor behind.

[carter34]

Exchange would not allow IEO if they see big risk on it, as they will loss their business if they found violating a serious law.
Overall, this is a small move for the exchanges.

Yes I want to agree to this. The exchanges will do themselves more harm to accept an overtly bad project in the exchange because investors would run away from buying or trading with the exchange because of uncertainty.

Thus, IEO is a lesser devil. You can now see at least the listing of the coin and decide what you want to do later.

[Lanatsa]

Exchange would not allow IEO if they see big risk on it, as they will loss their business if they found violating a serious law.
Overall, this is a small move for the exchanges.

Yes I want to agree to this. The exchanges will do themselves more harm to accept an overtly bad project in the exchange because investors would run away from buying or trading with the exchange because of uncertainty.

Thus, IEO is a lesser devil. You can now see at least the listing of the coin and decide what you want to do later.

This is a valid point but there are exchangers specially the small ones doesn't care much on what projects would be listed thru IEO.
When it comes or trying to compare up the risk we can say that IEO is much better option than ICO when it comes to exchange listing.
Business would be mainly affected if they do list out shitty projects but we cant really avoid the fact that even these projects aren't that
different on the ones being offered on ICO. Survival on this harsh crypto market is still questionable because it will always matter on its demand and usability.

[CryptoBry]

Exchange would not allow IEO if they see big risk on it, as they will loss their business if they found violating a serious law. Overall, this is a small move for the exchanges.

Yes I want to agree to this. The exchanges will do themselves more harm to accept an overtly bad project in the exchange because investors would run away from buying or trading with the exchange because of uncertainty. Thus, IEO is a lesser devil. You can now see at least the listing of the coin and decide what you want to do later.

This is a valid point but there are exchangers specially the small ones doesn't care much on what projects would be listed thru IEO. When it comes or trying to compare up the risk we can say that IEO is much better option than ICO when it comes to exchange listing. Business would be mainly affected if they do list out shitty projects but we can't really avoid the fact that even these projects aren't that different on the ones being offered on ICO. Survival on this harsh crypto market is still questionable because it will always matter on its demand and usability.

I know of this because last month I studied some IEO projects especially in exchanges which we can't consider to be at least belonging to the top 20 and many of the projects were questionable at least on my own simple standards. Well, this all boils down to business. Those exchanges, I am sure, are charging good amount of money so a project can have the IEO crowdfunding done in the platform.

This is the reason why we have to be careful if we are still a big fan of new projects either ICO, STO or IEO...many of them are just old dogs wearing new collars. The reputation of the exchange where IEO is done is very critical here...an exchange should have its own strict guidelines and qualifications before allowing a project to come on board.

Right now, in fairness though, I still have to hear a lot of scams and failed projects using the IEO route but let's see next year if this is going to be the same. Maybe a general study or survey of all the projects introduced via the IEO way should be done to see how things are compared to the dreaded ICOs in the past.

[marcbitcoins]

It was clearly the solution, IEO help the market to grow again, it's just beginning and most probably we will see more growth this year.
Exchange would not allow IEO if they see big risk on it, as they will loss their business if they found violating a serious law.
Overall, this is a small move for the exchanges.

I agree with you therefore if we will going to join a project investments that are using IEO platform then better if we will choose the known and best exchanges as their reputation is at stake if they will support a scam or a none feasible project. I strongly believe that IEO will lift up the reputation of Cryto currency but still we need to be vigilant as IEO platform is not safe from the thieves too.

[teosanru]

What i personally feel here is that law can be quite cumbersone so what I have found here is this as per your article:

Conducting an IEO in the United States, or selling to “U.S. Persons”[6] by way of an IEO, is almost certainly a violation of the Securities Act of 1933. Punishable by a host of draconian penalties

Now as you say placement of securities is violation of the laws created by SEC. However the thing is do SEC even recognize Bitcoin and other cryptocurrencies as Securities?? I don't know any excerpt from the rules which indicates how is bitcoin recognized. Maybe it is something which has a value and has a market where it can be sold and purchased. Is this enough for being a security? I hope the lawyer helps on this.

[imstillthebest]

Exchange would not allow IEO if they see big risk on it, as they will loss their business if they found violating a serious law.

I agree with you therefore if we will going to join a project investments that are using IEO platform then better if we will choose the known and best exchanges as their reputation is at stake if they will support a scam or a none feasible project.

but the exchange and the ieo are different  ( different owner , different projects ) they are not co related to each other which means the exchange will put an agreement or a statement that they will only accept the ieo because the ieo paid them to be listed under them but the exchange itself is not resposible for any loss or any problem that might occur in the future  . thats why the potential risk is still there and the exchange reputation wont be affected either

[Gozie51]

Exchange would not allow IEO if they see big risk on it, as they will loss their business if they found violating a serious law. Overall, this is a small move for the exchanges.

Yes I want to agree to this. The exchanges will do themselves more harm to accept an overtly bad project in the exchange because investors would run away from buying or trading with the exchange because of uncertainty. Thus, IEO is a lesser devil. You can now see at least the listing of the coin and decide what you want to do later.

This is a valid point but there are exchangers specially the small ones doesn't care much on what projects would be listed thru IEO. When it comes or trying to compare up the risk we can say that IEO is much better option than ICO when it comes to exchange listing. Business would be mainly affected if they do list out shitty projects but we can't really avoid the fact that even these projects aren't that different on the ones being offered on ICO. Survival on this harsh crypto market is still questionable because it will always matter on its demand and usability.

I know of this because last month I studied some IEO projects especially in exchanges which we can't consider to be at least belonging to the top 20 and many of the projects were questionable at least on my own simple standards. Well, this all boils down to business. Those exchanges, I am sure, are charging good amount of money so a project can have the IEO crowdfunding done in the platform.

This is the reason why we have to be careful if we are still a big fan of new projects either ICO, STO or IEO...many of them are just old dogs wearing new collars. The reputation of the exchange where IEO is done is very critical here...an exchange should have its own strict guidelines and qualifications before allowing a project to come on board.

Right now, in fairness though, I still have to hear a lot of scams and failed projects using the IEO route but let's see next year if this is going to be the same. Maybe a general study or survey of all the projects introduced via the IEO way should be done to see how things are compared to the dreaded ICOs in the past.

I think the bulk of your post is centering on failed projects, scam and promises that were never fulfilled. And going with the topic, this is suppose to be the focus of a lawyer to seek for remedy. Hence, the perspective of a lawyer would be to the benefit and remedy to an investor in case things go south with invested money. But I don't think the laws in cryptocurrency yet is giving any protection, if there is any.