A blockchain project founder says a crypto exchange swindled him, and it points to a broader problem in the IEO market – The Block Crypto


Quick Take

  • Cryptocurrency exchange Coineal recently canceled an IEO for blockchain security company CYBR, whose founder now claims that Coineal faked IEO sales volumes and scammed them out of listing fees 
  • Companies seeking an IEO are regarding it more and more as a marketing opportunity rather than fundraising venue, as some exchanges charge high listing fees and use the funds raised from IEOs for marketing campaigns
  • IEOs replace ICOs as the latter have lost steam amidst pervasive frauds and scams. However, exchanges that conduct IEOs may still expose investors to risks as they reportedly pump token sales volumes to attract investors


On day two of his company’s initial exchange offering (IEO) on the cryptocurrency exchange Coineal, founder Shawn Key felt incredibly optimistic. 

He had paid Coineal 11.5 BTC (around $76,590) for his little-known token, CYBR, to be listed, and a large order just suddenly bumped the sales to around $2.1 million, or approximately 40% of the total token supply. As most other IEOs on Coineal ended up selling out, the company (also named CYBR) could potentially rake in as much as $4 million from this listing. 

As the IEO continued, the sales soon slowed down, and even came to a halt. By the time that the IEO ended on July 3, the Coineal website showed that only 56.56% of CYBR were sold. Even worse, this percentage dropped to near 0 after Key asked the exchange for the money raised from this IEO and questioned the accuracy of the sales result. Coineal subsequently announced that it had decided to cancel CYBR’s listing and refund all participants in the IEO. 

Key and his company ended up receiving nothing from this IEO, not to mention losing the 11.5 BTC that he paid up front to get CYBR listed. Meanwhile, the exact number of CYBR sold on Coineal remains myth. At the end of the token sale, the initial 56.56% of total token supply, which accounted for roughly 19.8 million CYBR, shrank to a meager 28,800, or approximately $3,456. 

“[Coineal] kept saying that any additional funds are needed for market-making and internal reserve. And just all this bogus stuff. All they do is to rip the money off from IEO companies,” said Key.

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However, even this $3,456 number cannot be verified, since none of it ended up in Shawn’s pocket. All he received was an Excel sheet listing all the transactions related to the IEO. As Ben Fairbank, whose company RedFOX Labs also had its IEO on Coineal, points out, “how would anyone know the list is real or not? We got no way to verify one way or another.” 

The disappeared money 

To some companies looking to raise money, the IEO process is as opaque as it is skewed. To start, exchanges have the sole power to decide which projects to be listed (and delisted) on their platforms. They also work with companies to design marketing strategies for their IEOs and usually store all funds raised from the sales while the IEO is ongoing. 

Several blockchain companies also indicated to The Block that some exchanges would lock up the funds raised from IEOs and used the money for marketing purposes. While the length of the lockup period may vary, companies sometimes end up receiving little to no money from their IEOs, even though their tokens were displayed as sold out on the website.  

“If you are using IEO as a fundraising mechanism, you are going to be disappointed because these lock-aways that these IEOs put on people,” said Fairbank.  

Even nominally, the total amount of raised funds from an IEO is disclosed on an exchange’s website, but the lockup period makes it difficult for companies to know how much exactly they have raised from IEOs, according to Shawn and Key. 

Fundraising or marketing campaign? 

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On Coineal website, most of its IEOs are listed as sold out. A quick Google search of “IEO sold-out” also returns many results of companies selling out their tokens within minutes. These data points are usually incorporated into the companies’ marketing campaign to inject investors with confidence in the tokens. 

Therefore, much of the benefit of doing an IEO comes from the public exposure companies gain by being associated with well-known exchanges and showcasing the popularity of their tokens. The fundraising perk of an IEO, on the other hand, depends on the terms of agreement that individual companies reach with exchanges on a case by case basis. 

To be sure, although wide public exposure looms as a prominent factor when companies evaluate the success of their IEOs, it is also possible to actually raise some money from this process, as long as the IEOs are on the right exchanges. 

“It was a $5 million IEO, and you actually do keep most of your money,” said Harmony Head of Business Development Li Jiang, whose company just concluded its IEO on Binance Launchpad. “Obviously, there is marketing. It is a fundraising event, but the bigger impact is also the community and getting your tokens in hands of holders.” 

From ICO to IEO 

IEOs started to pick up traction after the 2017 initial coin offering (ICO) zeal was drown by frauds. The newer fundraising tactic still sells tokens as in a regular ICO, but the projects are launched on exchanges, which provide “quality control” of these projects to weed out potential scammers.

However, CYBR and some other companies’ experience seems to suggest that some exchanges, which are supposed to act as a gatekeeper for investors against investment risks, can actually transpose those risks to companies looking for financing opportunities in IEOs. 

Earlier this year, The Block’s very own Isabel Woodford reported that KuCoin, a major Hong Kong exchange, threatened to delist some projects unless they paid the so-called “volume-boosting fees.” As its name indicates, the fees were used to pump the volumes artificially so prices did not crash too dramatically.

The projects that were in peril of being delisted issued their tokens through ICOs, which are now widely considered dead. IEOs, on the other hand, may also face this problem of wash trading. 

Key suggested that the sales volumes of IEOs on Coineal might have been artificially shored up in order to allure uninformed investors. In CYBR’s case, Key said he was offered a solution by Coineal Director of Business Development Max Smetannikov to manipulate the sales and bolster the price of CYBR, although he declined it. 

“When the IEO ends, what [Coineal] does is say [the IEO company] still owes the remaining of the BTC deposit (for the listing fee). We [Coineal] don’t have any money from the raise; let’s continue to list, we will sell tokens and when that things pump there will be money for Coineal and money for your company.” 

For Key, the prospect of getting a refund from Coineal looks dim, as the exchange blamed CYBR for “insufficient preparation” and “inconsistencies in the cooperation process” that caused the cancellation of this listing, implying a breach of contract on CYBR’s side. Since his IEO did not sell out, it didn’t get the marketing exposure, and he didn’t raise any money from it. 

If Key trusted his original instinct, he might have found himself in a different situation.

“They were originally asking us for 10 bitcoin at a price of $6,660 a coin,” he said.

“At that moment, I should have known to run like hell.”

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