Blockchain-Based ICOs: Pure Hype or the Dawn of a New Era of Startup Financing?

Abstract

This study explores the determinants of initial coin offering (ICO) success, where success is defined as the amount of capital a project could raise. ICOs are a tool for startups in the blockchain ecosystem to raise early capital with relative ease. The market for ICOs has grown at a rapid pace since its start in 2013. We analyze a unique dataset of 278 projects that finished their ICOs by August 2017 to assess determinants of funding success that we derive from the crowdfunding and venture capital literature. Our results show that ICOs exhibit similarities to classical crowdfunding and venture capital markets. Specifically, we identify resemblances in determinants of funding success regarding human capital characteristics, business model quality, project elaboration, and social media activity.

Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales

“…ICOs are a fundraising mechanism in which a new token is sold to investors and prospective returns, see Benedetti and Kostovetsky (2018), Chanson et al (2018), Dittmar and Wu (2018), Drobetz et al (2018), Hu et al (2018), Lu (2018), Momtaz (2018a), Stastny (2018), Yuryev (2018), and Stanley (2019). On the amount raised, including failure to meet a set target, see Adhami et al (2018), , Ante et al (2018), Blaseg (2018), Burns and Moro (2018), Davydiuk et al (2018), Feng et al (2018), Fenu et al (2018), Fisch (2018), , Momtaz (2018b), Momtaz (2018c), Rhue (2018b), Albrecht et al (2019), Ante and Fiedler (2019), Cai and Gomaa (2019), Cerchiello et al (2019), Chen (2019), Johnson and Yi (2019), Masiak et al (2019), Philippi et al (2019), and Wu et al (2019). On liquidity see Bourveau et al (2018), Lyandres et al (2018), and Fisch and Momtaz (2019).…”

A systematic review of blockchain

“…For example, Xu (2016) explores the types of fraud and malicious activities that blockchain technology can prevent and identifies attacks to which Initial coin offering (ICO) is also a research topic of great concern to scholars. Many researchers analyze the determinants of the success of initial coin offerings (Adhami et al 2018;Ante et al 2018). For example, Fisch (2019) assesses the determinants of the amount raised in ICOs and discusses the role of signaling ventures' technological capabilities in ICOs.…”

Choice Between IEO and ICO: Speed vs. Liquidity vs. Risk

“…After that a fraction of randomly chosen type 2 investors who purchased tokens during IEO will sell them in period 1 and the remaining type 2 investors will sell their tokens in period 2. is related to token market uncertainty. It is well known from the literature that the degree of this uncertainty is very high (see eg Antonakakis, Chatziantoniou and Gabauer (2019) or Financial Stability Board (2018)). In addition to factors a¤ecting the markets for traditional …nancial assets, token market is also a¤ected by factors a¤ecting blockchain technology development, cryptocurrencies (since payments can be made in cryptotokens) etc.…”