US SEC issues investor alert, warning people to be cautious with IEOs

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Updated on Mar 11, 2020

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The US SEC recently published a new investor alert, warning people against investing in IEOs.
While IEOs were typically considered safer than ICOs, the fact that projects are paying exchanges to have their coins listed jeopardizes investors' safety.
While 'real' blockchain projects do have true use cases, new cryptos sold on exchanges seem to be just as risky as ever.

This Tuesday, the US Securities and Exchange Commission (SEC) once again published a warning for crypto investors, urging them to be cautious when buying cryptos in Initial Exchange Offerings.

As many likely remember, the surge of crypto prices back in 2017 led to countless new crypto projects’ development. These altcoins, offered through Initial Coin Offerings (ICOs) were considered extremely profitable, but also risky, as investors often fell for scams in their rush to buy coins whose prices’ were increasing the minute they hit the market.

Eventually, the SEC announced a crypto crackdown, which it still has to deal with today, simply due to a high number of projects that were selling securities, or just purely scamming investors. However, in early 2019, Binance started a new trend, IEO, by holding a BitTorrent (BTT) sale on its Binance Launchpad.

The trend took off rather quickly, and before long, every major exchange was selling new tokens, promising their legitimacy, while investors were buying them due to their trust in the platform. In other words, IEOs were thought to be a safer, more reliable version of ICOs, which allowed people to invest in interesting projects in a safe environment.

Exchange-based token sales are as risky as ICOs

For a time, everything seemed to finally be going well for the crypto industry. However, these days, the SEC warns that IEOs were compromised, as startups often pay exchanges in order to get their tokens listed, which makes IEOs just as risky as ICOs ever were.

While this should not be used against blockchain technology, which has already uncovered countless valuable use cases in a wide range of industries — investing in new crypto projects developed on the blockchain remains a risk.