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What Is an Initial Exchange Offering (IEO)? Five-Minute Explanation

  • Alex Morris
    📚 WikiCoin

    Do IEOs have the potential to replace ICOs as the main fundraising medium in the Blockchain space? In short, the answer is yes, but there are numerous factors that you have to consider before putting your money into an IEO. U.Today reviews the main peculiarities of IEOs to find out whether they bring anything new to the table. Read our in-depth review to find out all their pros and cons.  


What Is an Initial Exchange Offering (IEO)? Five-Minute Explanation
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Since Mastercoin held the very first initial coin offering (ICO) back in July 2013, there have been countless Blockchain projects that held their own fundraising campaigns in such a way. However, ICOs have multiple bottlenecks, which prompted the appearance of other means of cryptocurrency fundraising, such as security token offerings (STOs) that combine the best from both worlds. As of recently, initial exchange offerings (IEOs) also started creating a lot of buzz in the crypto space, but what makes this medium of fundraising special?  

What is an IEO?

With IEOs, a cryptocurrency exchange (not the project’s developer himself) serves as the counterparty that helps facilitate the fundraising process. Developers behind a certain IEO are supposed to mint their tokens and send them directly to the exchange of their choice. Just like with an ICO, the two parties can agree on a set of conditions. For instance, the project wants its tokens to be sold at a fixed price while exchanges require that issuers set a cap limit.  

Some might suggest that an IEO is simply the old wine in a bottle, which is not correct. While both of these fundraising models share the rationales of initial public offerings (IPOs), they are fundamentally different. Exchanges are required to perform a comprehensive assessment of the project in order to curb the biggest problems that ICOs faced – rampant scams. During the peak of the ICO craze, investors would blindly throw money at every ICO (even those who couldn’t offer anything but a white paper).  
IEOs appear to be a much safer bet than ICOs


Major Advantages

For the team:

The obvious advantage of IEOs for projects that are raising funds is immediate access to vetted investors who are ready to spend their crypto. Just like companies that launch their initial public offerings and hear the bell ring on the Nasdaq exchange when you go live in front of shareholders, projects can piggyback off the existing user base.     

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According to Autonomous Research, ICO issuers have to fork out anywhere from $1 mln to $3 mln in order to list the token on their exchange. Moreover, there are additional costs that are associated with hiring advisors and running marketing campaigns. While exchanges still charge hefty fees for conducting an IEO, the team behind the token is able to shift its focus from marketing and fundraising to the development of their project.

For exchanges:

Exchanges also get joint marketing. Case in point: the Binance exchange that appeared in the spotlight during the launch of the BitTorrent token.

Of course, exchanges also earn a sizeable amount of money because of listing fees, which depend on how big the platform is.

Exchanges also benefit from onboarding new users who are interested in a particular IEO. After creating an account for the sake of participating in an IEO, these users might want to stick around longer, eventually becoming regular customers.    

For investors:

Investors who take part in an IEO are subjected to less incurring risks. In lieu of dealing with different wallets on different Blockchains, they simply need to create an account with an exchange and purchase tokens. Such major exchanges as Binance do not want their reputation to be tainted after cooperating with a fraudulent project, which means that there is always a robust vetting process that results in a higher degree of trust.    

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What exchanges are interested?

IEOs so far didn’t get as much recognition as ICOs, but many exchanges are already supporting them. Binance, the largest cryptocurrency exchange by daily trading volume, started the trend by rolling out its own IEO platform in December 2017. The exchange offering was initiated by an Ethereum-based dApp, Gifto, which raked in $3.4 mln with the help of Binance. Before this initiative, you would only need to create a flashy website and an Ethereum-based token. Recently, BitTorrent (BTT) was launched on Binance Launchpad before getting listed on the Binance exchange.

Binance Launchpad is the most successful IEO so far
As reported by U.Today, Binance recently supported the BitTorrent IEO. All available tokens were sold in a few minutes with a total of $7.2 mln raised. That expectedly led to controversial allegations about Binance and Tron, which are cooperating together as of recently. Some examples of other exchanges and the project they supported include:

  • Coinis. The South Korean cryptocurrency exchange allowed the Blockchain-based remittance platform REMITT to raise at least $2.3 mln.  

  • OKEx. On March 13, the Malta-based exchange made an announcement about the launch of OKJumpstart, its new platform for holding IEOs. OKEx’s Andy Cheung claims that holding an IEO is a win-win situation for both exchanges and startups ‘who raise funds to execute their ideas’.

  • Bittrex also joined the IEO party by announcing that it would host one for the RAID token. Unfortunately, the IEO, which was scheduled to happen on March 15, was eventually scrapped without clarifying the reason behind this decision. After that, Bittrex issued an official statement where the exchange claims that it presumably wasn’t ‘in the best interest’ of their customers to hold an IEO.

  • Huobi, another major exchange that is based in Singapore, didn’t want to lag behind its competitors and launched its own IEX platform. However, Huobi tries to distinguish its fundraising model by naming it ‘a direct premium offering’ (DPO), which allow users to purchase crypto below market prices.        

  • KuCoin launched KuCoin Spotlight with an intent ‘to reveal the hidden gem’ in Blockchain.

How to take part in an IEO?

  1. Make sure that an IEO is going to happen. While the popularity of ICOs has dwindled throughout 2018, they remain the main medium of fundraising for most of the cryptocurrency projects. Check the website of the development team in order to find out whether they will conduct an ICO or IEO.
  2. Determine what exchanges will take part in an IEO. A token issuer might ink an agreement with only one exchange, so it will have no choice but to create an account on this platform. Of course, those who happen to already have an account on the exchange aren’t supposed to go through the registration procedure again.     
  3. Complete your KYC/AML. After registering with a certain exchange, you will also have to go through a verification procedure to mitigate security risks. Don’t postpone it to the day before the IEO since it may take the exchange several days to confirm your identity.  
  4. Find out the available crypto options. Bitcoin (BTC) and Ethereum (ETH) are the two most conventional options, but exchanges in the likes of Binance go with their own tokens.     
  5. Lastly, you have to wait for the day until your IEO starts. Be careful not to miss the token sale given that it may last literally for a couple of minutes (case in point: BitTorrent).

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The cons of running an ICO

Since we’ve already reviewed all the advantages of launching an IEO, it is fair to pay attention to the cons of this fundraising model as well.

  1. A limited number of trading platforms. Since IEOs are typically conducted on a single exchange, some potential investors might be shooed away by the prospect of creating a new account and going through the verification procedure that usually lasts for several days.

  2. One more point of failure. While an exchange adds legitimacy to a certain project, it’s still a double-edged sword since an exchange poses an additional point of failure.       

  3. Centralization. A handful of big investors could control the lion’s share of all tokens, which can easily result in price manipulations.

  4. Users do not own their tokens. Speaking of centralization, it is worth mentioning that centralized cryptocurrency exchanges are in full control of its users’ private keys, which ironically means that you do not own tokens that you purchased. If a certain exchange gets hacked, all your tokens will be lost.

  5. High risk of pump-and-dump schemes. If a certain fraudulent project does manage to get listed on a cryptocurrency exchange after going through a vetting process, it will be much easier for the team of developers to instantly dump the coins after the whole thing has been sold to investors.   

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Will regulators like it?  

As mentioned above, ICOs were plagued with endless cryptocurrency scams, and they took a toll on the reputation of the cryptocurrency industry as a whole. ICOs remain banned in China, but it seems like the Beijing Internet Finance Industry Association is not happy about IEOs as well.

IEO/STO/IFO/IMO and other fundraising models that recently popped up on the crypto scenes are all deemed illegal by the Chinese government.

As for other regulators around the globe, it is too early to tell whether they will treat IEOs in a different way since they represent a very small niche of the crypto industry. However, the fact that they place more emphasis on vetting investors might play in their favor.

The bottom line

During the next few years, we can expect other exchanges to jump on the IEO bandwagon. The success of Binance Launchpad showed that this fundraising model could be quite successful. However, it doesn’t mean that you should invest in IEOs by proxy. While arising as a better alternative to scammy ICOs,  exchange offerings still have multiple downsides.

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How to Learn Solidity and Start Blockchain Programming

  • Eric Croix
    📚 WikiCoin

    If making an Ethereum-based dApp or creating an ERC20 standard token sounds compelling to you, than you need to learn the language called Solidity. In our tutorial we provide you with the foundation of coding smart contracts


How to Learn Solidity and Start Blockchain Programming
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Blockchain programming has become one of the best paying and challenging software spheres during the recent decade. Although blockchains are language-agnostic and many of the existing languages, like C++ and JavaScript (JS), are used by blockchain engineers, there are some tasks that couldn’t be conveniently realized by existing languages, which opened up the demand for new, crypto-specific options. One such language is Solidity.

Solidity was born as a core part of the Ethereum ecosystem. It absorbed C++, JavaScript, and Python. It has many contemporary features like libraries and inheritance. Solidity is designed to write programs that interact with Ethereum accounts, which are called smart contracts. Smart contracts are executed on Ethereum Virtual Machine (EVM), enabling users utilizing them perform tasks like crowdfunding, blind auctions, voting, and many others in a decentralized manner. The most famous killer-app of smart contracts was decentralized funding in ICOs, which started the bull rally on the crypto markets in 2017.

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Whether you are an experienced developer or just starting out in crypto, it’s a good idea to start learning Solidity because smart contracts have become a crucial part of the blockchain ecosystem. Aside from being actively implemented by dApps, they are being actively integrated into infrastructure-layer blockchains and even in Bitcoin via providers like RSK. By knowing how to build smart contracts you will make your blockchain career more sustainable and be able to produce better quality solutions. Let’s not pull it off any longer and get our hands dirty with coding!

Understanding the basics of a smart contract

A smart contract account consists of three sections: balance, storage, and code. The balance represents how much Ethereum a smart contract has. Storage holds data like strings and arrays that are specific to an application. The code section has the raw machine code that is compiled from what we write in Solidity.

Unlike user accounts, smart contract accounts are not external to the respective networks. In other words, you can use your wallet with various networks like Kovan and Ropsten, but you can’t do this with a smart contract. Smart contracts are internal.

Each smart contract has a source, which is stored on an author’s device and instances, which are stored on the blockchain. In order to create an instance (account) of a smart contract, we need to deploy it to the network. It very much resembles the relationship between classes and instances in traditional object-oriented programming (OOP) and languages representing it (JS, Ruby). To give you a more visual representation, let’s create a class ‘Bike’ and add an instance of it.

Bike class & instance

Bike class & instance

Source: Image by U.Today

What we will be writing is a contract definition, which will then run through a compiler that will produce two files: bytecode and application binary interface (ABI). Bytecode is what will be actually fed to the EVM and ABI is a layer between bytecode and regular JavaScript code that allows building a user interface (UI).

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Choosing an IDE & version of Solidity

Before we start, we need a proper integrated development environment (IDE). In other terms, we need a convenient terminal with the necessary tools to write our code in. For the purposes of this tutorial, we will pick Remix, an IDE created by the Ethereum foundation that allows writing, testing, debugging, launching smart contracts and many more. You can use it either straight in the browser or download it locally if you would like.

Once you launch Remix, you will be presented with the code editor in the center, the file manager on the left, and a compiler on the right.

Initial Remix window

Initial Remix window

Source: Image by U.Today

There will be some pre-written code – we won’t need that. To create out first-ever smart contract let’s press on the little plus icon in the top-left corner of the terminal and give it a name.

Creating a new project in Remix

Creating a new project in Remix

Source: Image by U.Today

As we have the blank .sol document now, we should specify the version of Solidity that the compiler will run. At the time of this tutorial, the latest version is 0.5.7. If you are not sure which version to use, you can specify a range of versions.

2 types of specifying the version of Solidity

2 types of specifying the version of Solidity

Source: Image by U.Today

Lastly, let’s give our smart contract a name, followed by a parenthesis.

Smart contract naming

Smart contract naming

Source: Image by U.Today

Writing your first smart contract

Once we have our canvas ready, it’s time to define the basic building blocks – variables. While experienced software engineers will have no issues understanding this concept, we will briefly introduce it to beginners. Variables are placeholders for chunks of information that are later referenced by a program that runs them.

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Let’s create a couple of variables: a string (a sequence of symbols) and an integer (a number). In Ethereum’s case, variables are stored in the blockchain along with the rest of parts of contracts and can, therefore, be accessed and updated from anywhere. Another key characteristic of Solidity variables is that you can make them private by writing ‘private’ next to the variables. Finally, for the integers, Solidity has two types: signed (can be positive & negative) and unsigned (can only be positive). To specify an unsigned variable, we should just put ‘u’ before it.

A private string and an integer

A private string and an integer

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Once we have the ‘name’ variable, we need to write out the methods of setting and getting it. This looks like a JS function. Remember that Solidity is statically typed, so we have to define variable types. Now any value we put in the ‘setName’ will define the ‘name’ string. For the getter, we will use ‘getName’ and specify what variable we expect to see. Now, it’s time to do the same for the ‘age’ variable. The method is constructed similarly to the ‘getName’.

Name/age setters and getters

Name/age setters and getters

Source: Image by U.Today

Let’s test our little chunk of code. Go to the ‘Run’ tab of the compiler and press ‘Deploy’ under your contract’s name. At the very bottom of the compiler, you will now see the ‘Deployed Contracts’ section that has our methods available. In order to pass a name to the ‘newName’ value, we need to make sure that our string is written in JSON, otherwise, the ‘getName’ will return nothing. For the ‘setAge’ just put your age without quotes. As you see, we can now set and receive the ‘name’ and the ‘age’ variables through our smart contract.

Compiler, with a name and an age

Compiler, with a name and an age

Source: Image by U.Today

Defining Wei and Gas

One of the most remarkable features of smart contrasts is that to deploy them to the Ethereum network you will need to initiate a transaction, which costs some amount of money that is paid in Ether. It’s crucial to understand how the fees are utilized in the system, as they will be deducted each time you interact with EVM.

What’s Wei?

Let us assume that reading this far into our tutorial you have used Bitcoin at least once. You probably made a small transaction that was way less than 1 BTC. In that case, you used Satoshis, which are something like pennies for a dollar. Wei is like a Satoshi – it’s the smallest part of 1 Ether. If we think of it in programming terms, it’s the lowest unsigned integer in the network. While interacting with the network, you will mostly encounter Gwei, which refers to Gigawei and equals 1 billion Wei.

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What’s Gas?

Gas is an essential part of the mechanism of smart contract execution. It has two values for each transaction: Gas consumed and its price. It’s worth mentioning that a user initiating a transaction defines these values. However, if the set value of Gas won’t be enough to process a specific operation, then the Gas will be consumed, but the transaction will fail. Moreover, if the price for Gas will be set too low for the network at a given time, the transaction will not be processed by the nodes, eventually making it unsuccessful. There are several services to check optimal values for your transactions, one of them being ethgasstation.info. To get a better understanding of Gas and why it costs any money, let’s code some of it by ourselves.

Get back to your Remix window and initiate a new file. In our example, we will call it ‘Gas’ and create a contract with the same name. Bear in mind that the more data we will require to store on the blockchain, the more Gas we will need. That being said, for the purpose of this tutorial we will create a cheap contract; the more you will add to it, the higher the fee will be.

There will be a function that returns an integer that is a sum of two inputs. To make it as lightweight as possible, we will specify that our contract will store nothing on the blockchain, and for that we will put ‘pure’ next to the function.

Cheap contract

Cheap contract

Source: Image by U.Today

Now you can deploy it in the compiler and input any two numbers to get the integer ‘c’. To check the price of our transaction we should take a look at the terminal located beneath the code section. There is a transaction cost and an execution cost. The first one refers to how much data a transaction has. The second one refers to how much of EVM’s power was required by the transaction.

Cheap contract’s cost

Cheap contract’s cost

Source: Image by U.Today

This is an extremely basic transaction that costs almost nothing for the network. In writing meaningful smart contracts you will add more details, which will increase their weight and therefore transaction fees.  

Creating & deploying your own ERC20 token

Let’s face it, the majority of the blockchain developers that are just starting out are eager to play big and create their own blockchains and tokens. While this is an extremely difficult topic that attracted some of the best software engineers from other spheres, building a basic ERC20 token isn’t rocket science.

First, we need to create another file in Remix and uploading the ERC20 interface, which is the following:

ERC20 standard

ERC20 standard

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The ‘totalSupply’ function lets us see how many tokens we have in total. The ‘balanceOf’ function is used to get amounts of tokens on specific addresses. The ‘transfer’ function allows users performing transactions between each other. The ‘transferFrom’, ‘allowance’ and ‘approve’ functions are there to allow people to let some other users initiate transactions on their behalf. Events are the logging tools for the ledger.

In addition to the interface itself, we will need a separate .sol file for our new token. Here we will import the ERC20 interface and specify our token’s symbol, name, and decimals.

uToday token

uToday token

Source: Image by U.Today

Before we compile it, we need to specify constraints.

  • Let’s start with the total supply – it’s a constant integer variable that we will make private. The total supply of our tokens will be 1 million, we also write a function to return this value.

  • Second, we need to store our token somewhere. For this, we will need to outline the mapping that will return a balance for any address specified.

  • Third, there should be a function for token transfers, which will essentially have an address of a receiver and an amount of token transferred. This function should also be able to check whether or not a sender has enough tokens on their balance, which can be realized through a simple if/then statement. In addition, we will set conditionals for ‘_value’ in a way that blocks users from sending transactions with 0 tokens as this would only flood the network with junk.

  • Fourth, we should create the mapping for the remainder functions, which is a mapping of mapping to an integer.

  • Then we will specify a few checkers in the ‘approve’ and ‘allowance’ functions and put conditions for the ‘transferFrom’.

  • Finally, not all the tokens will be available on the market. Some of the tokens are usually left out for teams, foundations, advisors and other purposes. Hence, it’s essential that we make it clear how many tokens will be circulating. As we created the tokens, the circulating supply equals our balance.

uToday token constraints

uToday token constraints

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The code is ready, so let’s test it. Proceed to the ‘Run’ tab of the compiler and deploy our token contract. You will see that we have our token data along with the total supply, balances, and allowances. Congratulations, you deserve a pat on the back!

To make our token actually function on the network, we need to deploy the smart contract (note that this is different from deploying it for testing in Remix). For the sake of this tutorial, we will use Remix and Metamask, but there other ways of doing so. Metamask is a simple but efficient Ethereum wallet program with a nice UI that integrates as an extension to some of the most popular browsers. In our case, we will use Opera. Firstly, go to metamask.io and download the extension. Once it’s done, you will see a fox icon in the top right of your browser.

Downloading Metamask & location of the icon

Downloading Metamask & location of the icon

Source: Image by U.Today

Press on the icon and proceed through the offered instructions to create a wallet. Do not forget to store the secret phrase! When you have your wallet, press on the Metamask icon and change the network to ‘Ropsten’ because we don’t want to mess with Ethereum’s mainnet.

Changing Metamask to Ropsten

Changing Metamask to Ropsten

Source: Image by U.Today

The last step is to generate some Ether (unfortunately, you won’t be able to use these for any real purchases, but they are necessary for testing). Head over to faucet.metamask.io and request 1 Ether.

Now you are all set. Return to your Remix window and change the environment to ‘Injected Web3’ in the compiler. Take a look at the account tab too – your address should be the same as that of what you generated with Metamask. Select the smart contract you want to deploy, which is your token contract and not the ERC20 interface and press on the respective button. A Metamask window will pop up with a transaction, its details, and options to interact with it. Submit the transaction, and our token will come into life.

Metamask popup

Metamask popup

Source: Image by U.Today

You can now play around with all the functions we specified earlier. Let’s look at our contract from another side to verify that it works properly. Like any other blockchain, Ethereum has multiple block explorers which serve the essential purpose of monitoring what’s happening on the network. In our case, we will stick to etherscan, though there is a handful of other great alternatives. Note that if you just go to etherscan, you will see the Main network. As we need to see the Ropsten network, you will need to put ‘ropsten.’ before the website’s address. Search for your address and you will see two transactions – one is for free Ether you received, and another is for deploying the contract.

User’s address in Etherscan

User’s address in Etherscan

Source: Image by U.Today

To find the address of your contract, press on the TxHash and navigate to the ‘To’ field. Here you can check your smart contract’s transactions, code, and events. At this point, we need to verify and publish our contract. Go to the ‘Code’ section and click on the ‘Verify and Publish’ link. Here you will need to again specify the name of your token, the version of the compiler (in our case the latest version of Solidity we used was 0.5.7, so we will stick to the related compiler version). Now you should copy the token’s smart contract code along with the ERC20 interface code from your Remix window to etherscan and press ‘Verify and Publish’ at the bottom of the screen.

Verifying the smart contract

Verifying the smart contract

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It’s time to go back to your contract’s address. The code in the ‘Code’ tab will now be verified. In addition, you will now have two more tabs: ‘Read contract’ & ‘Write contract’. In the reading section, we can check the functionality of our token. Input your (not the contract’s) address into ‘balanceOf’ field to see how many tokens you have; it should show 1 million that we hard coded as the total supply and gave it circulating to our wallet. That means that our token is now correctly working on the testnet.

Receiving the balance

Receiving the balance

Source: Image by U.Today

Summary

If you are looking to start a career in the crypto industry, you need to understand that despite its relative simplicity in basics, blockchain has incredible deepness to it. Since 2017 blockchains have evolved significantly and their use cases went beyond just financial transactions. With the advent of Ethereum, a whole new layer of networks appeared that hosts various dApps and blockchain-based solutions. The tool behind this evolution was a smart contract, and if you want to make your experience more valuable and future-proof, you should know how one works.

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While you can code smart contracts using other languages, Solidity is a better fit for such a purpose. Moreover, if you want to become an Ethereum developer, or create an ICO/ERC20 token for your project, this is your go-to choice. If you had some experience with C++ or JavaScript, coding on Solidity should be relatively easy. You will have to understand some differences between the client-server and decentralized models of launching software, though. Thanks to Ethereum Foundation and some third-party organizations, developers are presented with a set of convenient tools like Remix and Etherscan to code and deploy smart contracts.

We hope that our tutorial helped you with getting around the majority of Solidity’s concepts to be able to start your blockchain journey. Remember that you can always check with the latest documentation on Solidity. We wish you good luck and will be happy to use some of your dApps someday!

Cover image via www.freepik.com
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