An Optimal ICO Mechanism

18 Pages Posted: 2 Oct 2017

Date Written: September 9, 2017

Abstract

Initial Coin Offerings (ICOs) are raising billions in funding using multiple strategies, none justified from the point of view of mechanism design, resulting in severe underpricing and high volatility.

In the present paper, an optimal ICO mechanism is proposed for the first time: a truthful multi-unit Vickrey-Dutch auction of callable tokens (i.e., a new hybrid security of tokens packaged with callable warrants). Truthful bidding is an ex-post Nash equilibrium strategy and the auction terminates with an ex-post efficient allocation; additionally, the callability of the warrants eliminates the winner’s curse of the auction and its underpricing. An implementation demonstrates its practical viability.

Keywords: Optimal ICO, mechanism design, multi-unit auction, callable warrant, cryptoeconomics

JEL Classification: G23, G24, G32, D44, D82, C72, O33, L26

Suggested Citation

Cerezo Sánchez, David, An Optimal ICO Mechanism (September 9, 2017). Available at SSRN: https://ssrn.com/abstract=3040343. or http://dx.doi.org/10.2139/ssrn.3040343

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