When they were launched, Initial Exchange Offerings (IEOs) promised much. Their rise was expected to offset the decline in funding for initial coin offerings (ICOs) reeling from the after-effects of an SEC crackdown. Six months after the first IEO, however, things are not looking so bright.

An Arrangement Gone Wrong

The IEO arrangement was simple: issuers could minimize the complexity of an ICO by holding their token sales at cryptocurrency exchanges. Traders at an exchange were ready audience for issuer tokens. The offering venues also acted as vetting agencies of sorts because they claimed to conduct due diligence of their own before holding an offering. These checks assuaged investor concerns in an industry rife with scams and fly-by-night operators. Holding an offering at an institution like Binance were also expected to offer a veneer of legitimacy to the crypto wild west.

The first couple of IEOs seemed promising and this form of offering had outpaced the ICO industry by June. According to cryptocurrency tracker CoinSchedule, IEOs had raised $1.5 billion as compared to $836 million for ICOs.

But a post in online publication Decrypt states that the success rates for successful IEOs, even at well-known exchanges like Binance, has declined in recent times.

The most successful project on Binance’s Launchpad platform was the Elrond Network, which had an ROI of approximately 18 times its initial investment. The next most successful IEO was for the Bittorrent token, with returns of less than five times its initial investment. Big investors, who mainly flock to these exchanges, are staying away from the lure of quick profits in such offerings.

Instead, going by market and price movements, it would seem that they are consolidating their positions in the top crypto currencies trading at their exchanges. Low-tier exchanges (or exchanges with low volumes and fewer traders) have become the primary vehicles for IEOs. Four exchanges – Probit, Coineal, Bittrex, and Exmarkets – have garnered approximately 45 percent of the overall IEO market, tweeted Larry Cermak from The Block.

The article provides a litany of other details about the exchanges’ costs and IEO services. Probit charges $36,000 (with a fee of $18,000 upfront fee), Exmarkets charges two bitcoins while Coineal has a price tag of between ten to twelve Bitcoin (amounting to approximately $100,000 and $120,000 at current prices).

Those steep costs do not always guarantee success. Part of the problem is the fine print related to IEOs. While exchanges offer marketing of the offering as part of their service, they do not always specify the form or type of marketing. A cursory newsletter mention or advertising to users of a Telegram group seems to be all that entrepreneurs get. The Decrypt article quotes Shawn Key, who worked with Coineal, as saying that the marketing for their services was a “total joke”.

The Absurdity of Offerings

Perhaps the most absurd and mystifying part of this entire scenario is the willingness of issuers to go the length in issuing tokens at these exchanges. Apart from Bittrex, which has received favorable ratings in transparency rankings, the other exchanges mentioned as raking in cash from IEOs are obscure.

Token issuers seem to have overlooked glaring errors on their sites. Take Coineal, which describes itself as a ‘global reliable crypto trading platform’ and lists its branches in the most perfunctory manner possible: Japan, China, Korea, Vietnam, Russia etc. It also does not seem to have a physical address or team description of its team on the website.

The interesting thing is that China has banned cryptocurrency exchanges. Therefore, it is unclear how Coineal can claim to have a branch there. The breadth of its operations also means that it is probably either unregulated or subject to minimal regulations in other places, proving few recourses to entrepreneurs in case of problems.