Summary
1. Japan's IEOs are 'safe and have reach,' yet structural issues prevent an increase in their number
IEOs, mediated by centralized exchanges (CEXs), are less prone to fraud compared to ICOs and more accessible to the general public than IDOs. However, Japan has seen only about 10 IEOs over six years, a stark contrast to the approximately 100 IPOs annually, indicating a significant shortfall.
2. Barriers on the operator side include 'opaque and prolonged evaluations' and 'rigid tax and fund usage'
Stakeholders report that CEXs have not effectively separated evaluation and support services, with non-transparent evaluation criteria leading to prolonged review processes. Additionally, the tax treatment of IEO funds as revenue and high fees significantly reduce the funds retained, restricting their use to purposes other than those specified in the white paper, which diminishes business agility (with some pointing out it is akin to double taxation).
3. From the regulatory side, while fraud prevention is seen as a success, lack of liquidity and infrastructure are acknowledged as barriers to adoption
Regulators count the prevention of fund absconding scams as a success. However, difficulties in establishing initial liquidity through market makers and burdensome disclosure requirements are significant drawbacks in Japan. Additionally, the limited number of exchanges that can conduct IEOs, the lack of prepared pathways, and a shortage of experienced practitioners contribute to the reluctance to initiate IEOs, leading to stagnation in their numbers.
IEO Checkpoints
- Reliability, user base, and transparency of evaluations by the exchange listing/selling the token
- Feasibility of the project, clarity of the roadmap, and use cases for the token
- Ease of trading (liquidity) of the token and the risk of price fluctuations post-listing
- Regulatory environment: Legal treatment, tax and legal developments in your country/region
IEOs have been gaining traction in Japan as a new fundraising method since the first IEO was conducted by CoinCheck in July 2021. Unlike IPOs, which are well-established and thus have stringent evaluations, IEOs are seen as a way to quickly raise funds by treating cryptocurrencies as securities. Despite the buzz, the slow growth in the number of projects may surprise many. Given that the Japan Exchange Group (JPX) reports nearly 100 IPOs annually, the mere 10 IEOs over six years is disproportionately low, suggesting unique challenges inherent to Japan. However, the specific issues behind this stagnation often remain hidden, with the truth shrouded in darkness.
