An Initial Exchange Offering (IEO) is a new and improved twist on the classic Initial Coin Offering (ICO). ICOs are frequently blamed for exacerbating the effects of the rampant cryptocurrency speculation and subsequent crash in late 2017 and early 2018. Most ICOs have a very simple structure, relying on an Ethereum smart contract (often copied from another project) to do the heavy lifting.
The process begins with a whitepaper and a post on bitcointalk (the definitive crypto forum) to prime the project. Next a Discord or other chat server is set up with a couple overly-active mods who promise anything to early adopters to gain support. Now comes the transaction: investors trade their valuable Ether for some tokens that the founders promise will appreciate in value as the project gains momentum. Sometimes these tokens will be migrated to an independent blockchain at a later point. For early investors, these tokens are held in Ethereum wallets with little to no liquidity. Should an exchange decide to list the project as it grows, herds of speculators will flock as the exchange lists the token, and liquidity deepens as the project grows.
What I have described is a moderately cynical view on an ICO circa 2017. The part I left out is that at any point in the process I described, the founders can walk out with all the Ether they’ve acquired from selling their tokens and announce a “hack.” They could close up shop, wash the money through any old cryptocurrency laundry, and cash out.
ICOs frequently featured malicious actors impersonating founders and admins to scam money out of users in chat servers, and project websites were compromised to redirect investors to send money to fraudulent addresses instead of the official token sale smart contract.

An IEO attempts to curb some of this risk by appealing to the trust already instilled in an exchange. Instead of developers setting up a buggy virtual bodega shilling imaginary coins of questionable value and infinitesimal liquidity, we now have somewhat-trusted exchanges providing a market for tokens from day one. In an IEO, the project founders allow a designated exchange to run their token sale. The exchange lists the token as soon as it is issued, allowing investors to sell at any point, and drastically improving liquidity. The amount of blind faith in a project’s founders is greatly reduced, as the exchange offering the IEO shoulders much of the burden of trust. The exchange can make use of existing user registration information to streamline regulatory compliance as users can grant access to already verified credentials and identities from trading accounts when investing in new IEOs.
While it’s almost impossible to guarantee goodwill on the part of founders, there are some minimum standards that have been frequently neglected: detailed analyses of technical feasibility, any form of Anti-Money-Laundering verification for investors, and the security of the project’s website just to name a few.
While taking away the independence of crowd sales and forcing them to go through a couple major players to gain traction sounds a lot like concentration of power, it is a significantly more moderate position on the tradeoff between trust and decentralization.