Liquidity is investment Life-blood, lack of flow can quickly turn fatal.
Initial Exchange Offerings allow the exchanges to share their reputational capital and strategically align with new STOs to expedite their availability for trade, both into and out of the new assets.
Can you quickly, easily, and cheaply get out of any investment position that you take?
Ideally, you can. In reality, you often can’t.
Volume is merely a measure of the speed liquidity is flowing and the size of the portal it flows through. Prices at any one point in time are less important over the long-run than when one enters and exits the markets. For long term plays, speculation as to the exact price at entry is less relevant than direction, sizing, and timing of the position held in the asset class.
It was in the search for liquidity that ICOs were created; as an investment solution that could shorten capital lock-up times and allow more flexibility into and out of positions in those assets.
Yet a lack of regulatory certainty brings its own set of risks.
Initial Exchange Offerings, IEOs…
The immediate liquidity provided by the quick launch for trading on the exchanges provides value to:
- the investors that got into their positions in the private-sale,
- the developers of the initial minimum viable product, and
- the founding entrepreneurs
All perhaps needing an opportunity to recoup some of their initial investment. And by having the new token made immediately available for trading in the exchange marketplace, some of the liquidity pressures that can build up with a long hold time in any investment position can be released. Whether that investment was capital, labor, or invention, long hold times can create a cash squeeze that pushes high volumes of capital out of the investment as soon as a release in pressure becomes available.
Outsourcing the compliance concerns to the exchanges and mutually aligning incentives between the investors, the exchange, and the token founders. Allowing the exchanges to focus on their areas of expertise and letting the new token Creators keep their attention on building utility and real value to support the token’s existence. Often the developers of the technology and the business administrators are not ideally suited for managing the complex custodial, compliance, and clearance issues of a new token offering. But that is exactly what the Exchanges themselves are in the business of doing at a retail level with individual traders and business accounts.
With the exchanges having a ‘stake in the game’, strategically aligned with each token they offer on their platforms they’re motivated to assist with marketing and promotions of the new tokens. With so many new security tokens coming to market, the retail traders may better off by having the exchanges perform some initial due diligence on each token as they curate which solutions to put their name, money, and reputation behind.