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Initial coin offerings (ICOs) may be a significant innovation in entrepreneurial finance. Blockchain-based digital assets offer cryptographic security and credible commitment devices, which may permit a broader range of individuals to invest in high-risk, high-reward new ventures, and enable entrepreneurs who lack access to networks of conventional investors to raise financing. In an ICO, a blockchain-based venture raises capital by selling cryptographically secured digital assets, usually called “tokens.” These ventures often resemble the startups that typically finance themselves with angel or venture capital (VC) investment, though there are many scams, jokes, and tokens that have nothing to do with a new product or business.

Explosive fundraising has attracted interest from entrepreneurs, investors, and regulators. Between January 2014 and June 2018, ICOs raised over $18 billion. At least 15 individual ICOs have raised more than $100 million.

We define three types of digital assets. The first is a general-purpose medium of exchange and store-of-value cryptocurrency, such as Bitcoin (these are often termed “coins”). The second is a security token, which represents a conventional security on a blockchain to reduce transaction costs and create a record of ownership. The third is a “utility” token, which represents the right to access a service that the issuer will provide through a new network. Utility tokens comprise the largest and most well-regarded ICOs and are our primary focus. These are our definitions, not an industry standard, and we do not view the categories as mutually exclusive. For example, ether (the token of the Ethereum blockchain) is a utility token, but its broad use has led it to serve as a store of value.While they can be simple “corporate coupons” that give the holder the right to an issuer’s product or service, the most well-known ICOs employ them as the means of payment in a new marketplace.

We closely study a sample of 453 tokens that completed ICOs and were subsequently traded on a secondary market exchange for at least 90 days.  Our primary criteria for success are measures of liquidity, which we observe at horizons up to six months from the first trading date.

We find that liquidity and trading volume are higher for tokens that (i) offer voluntary disclosure; (ii) credibly commit to the project; and (iii) signal quality or potential to create substantial value. Disclosure measures associated with success include making source code public on Github, publishing a white paper, and publishing an intended budget for use of proceeds. Community engagement, measured by the number of Telegram group members (and to a lesser degree Twitter followers) is also associated with success.  A proxy for credible commitment to the project is an insider vesting schedule, which is hard-coded into the token contract. This is strongly associated with success. Signals of quality associated with success include prior VC equity investment in the issuer, holding a pre-sale before the public ICO, raising more money in the ICO, having clear utility value to the token, and planning to create a new blockchain protocol.  We also find that an entrepreneurial professional background for the lead founder or CEO is strongly associated with success. In sum, these results suggest that in this nascent sector, information asymmetry leads to economic mechanisms that parallel other entrepreneurial financing settings.


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