The Tokenization of the Economy: ICOs and the Implications for Entrepreneurship

Posted: 23 Oct 2017 Last revised: 11 May 2018

See all articles by Navroop K. Sahdev

Navroop K. Sahdev

Massachusetts Institute of Technology; Centre for Blockchain Technologies, University College London; Centre d'Économie de l'Université Paris-Nord

Date Written: August 24, 2017


As of May 2017, $380 million have poured into Initial Coin Offerings (ICOs) or “Token Sales” proving to be the latest craze in the financial services industry. According to CoinDesk, Initial Coin Offerings have raised approximately $1.5 billion since the start of 2017. It isn’t the aggregate numbers that are so impressive, but in fact the speed at which capital can be raised through this funding channel that is unprecedented. For example, the former CEO of Mozilla, Brendan Eich, raised $35 million in 30 seconds for his Brave startup through an ICO. Interestingly enough, the majority of these companies raising money via an ICO don’t actually have a product.

While the SEC has now clarified compliance requirements for ICOs that involve US companies and citizens, a lot of ICO actively circumvent these regulatory requirements by incorporating offshore and prohibiting participation of US citizens. The Chinese government has recently banned ICO activity in China with those who have used ICOs as a funding vehicle are now required to comply.

For the discipline of economics, the phenomena of the ‘tokenization of the economy’ presents an interesting avenue to the study of incentives and agent behavior under varying incentive regimes. But more than that, it is the new business models that the tokenization of the economy can enable that is the bleeding edge of this innovation. We argue that it is the decentralized nature of these token sales - where practically any individual can now invest - is what is truly innovative and non-trivial. Token sales are democratizing access to investment opportunities with expected implications for systemic volatility, risk preferences and economic complexity.

Thus far, no systematic study of these business models, agent incentives and economic implications has been undertaken. The current paper seeks to provide this clarity while contributing to the discipline of entrepreneurship studies.

Keywords: Blockchain, Cryptoeconomics, ICO, ICOs, Initial Coin Offerings, Token Sale, SEC, Tokenization, ICO Business Models

Suggested Citation

Sahdev, Navroop K., The Tokenization of the Economy: ICOs and the Implications for Entrepreneurship (August 24, 2017). Available at SSRN:

Navroop K. Sahdev (Contact Author)

Massachusetts Institute of Technology ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States


Centre for Blockchain Technologies, University College London ( email )

UCL Computer Science
Malet Place
London, London WC1E 6BT
United Kingdom


Centre d'Économie de l'Université Paris-Nord ( email )


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