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

Abstract

This paper analyzes a financing problem for an innovative firm that is considering launching a web-based platform. The model developed in the paper is the first one that analyzes an entrepreneur’s choice between initial exchange offering (IEO) and initial coin offering (ICO). Compared to ICO, under IEO the firm is subject to screening by an exchange that reduces the risk of investment in tokens; also the firm receives access to a larger set of potential investors; finally tokens become listed on an exchange faster. The paper argues that IEO is a better option for the firm if: (1) the investment size is relatively large; (2) the extent of moral hazard problems faced by the firm is relatively large; (3) the degree of investors’ impatience is relatively small. Furthermore, a non-linear relationship between firm quality and its financing choice is found. Most of these predictions are new and have not been tested so far.

Founder-CEO Extraversion and Sustainability Orientation in Initial Coin Offerings

“…To strike a balance between innovation and inherent risk, several advanced and more credible ICO frameworks, such as IEOs and Security Token Offerings (STOs), are emerging that place an emphasis on governance (Lambert et al, 2021; Miglo, 2022). This aspect of sustainability plays a pivotal role in shaping the trajectory of the fintech market.…”