Revealed: The true cost of running a failed IEO

Updated with response from Probit.

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We now know that “initial exchange offerings” are doing terribly. Just last week, research firm Longhash found that the briefly insurgent funding mechanism—which saw hundreds of crypto startups run token sales from the “launchpads” of willing exchanges—has yielded returns of around minus 80 percent for the thousands of investors that took part in the offerings.

What fewer people know, however, is how much these failures cost the token-issuing companies in the first place. After speaking with several companies and reviewing multiple IEO prospectuses, we found that they can be costly. While the larger, more established exchanges charge no upfront fees, the other, lower-tier exchanges demand payments that can exceed tens of thousands of dollars. And for those who want their IEOs seen by more than just a handful of investors, projects have to pony up additional fees for external marketing, hemorrhaging yet more thousands. 

Vanity token sales

The selling point of an IEO was brand-recognition and management—token-issuing startups could take advantage of exchanges with considerable industrial clout, who would oversee their sales. A small startup getting a Binance launch was tantamount to a glowing New York Times write-up. Hence you had obscure tokens like Ampleforth and Algorand, which ran IEOs on Binance and Bitfinex, rising to relative prominence almost overnight. 

Not so for those unable to court the larger exchanges, who had to go for lesser platforms. According to The Block’s Larry Cermak, “four little known exchanges”—Bitforex, Coineal, Exmarkets, and ProBit—accounted for some 45 percent of initial exchange offerings as of late July. And not only were the returns from these IEOs poor, they cost the token-issuing companies thousands of dollars. 

Of course, there’s nothing illegal about upfront fees—it’s just clear that, for the token-issuing companies, the amount spent has rarely been worth the amount…