Initial Coin Offerings and Platform Building

2018 WFA, 2019 AFA

47 Pages Posted: 18 Dec 2017 Last revised: 7 Nov 2018

See all articles by Jiasun Li

Jiasun Li

George Mason University - Department of Finance

William Mann

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: October 1, 2018

Abstract

In a typical initial coin offering (ICO), an entrepreneur pre-sells digital tokens which will later serve as the medium of exchange on a peer-to-peer platform. We present a model rationalizing ICOs for launching such platforms: By transparently distributing tokens before the platform operation begins, an ICO overcomes later coordination failures during platform operation, induced by a cross-side network effect between transaction counterparties. Furthermore, a critical-mass requirement that arises from an endogenous same-side network effect during the ICO rationalizes several empirical patterns observed in ICO structures. Our model provides guidance for both regulators and practitioners to discern economically valuable ICOs.

Keywords: coordination, entrepreneurial finance, fintech, ICO, network effect, platform

Suggested Citation

Li, Jiasun and Mann, William, Initial Coin Offerings and Platform Building (October 1, 2018). 2018 WFA, 2019 AFA. Available at SSRN: https://ssrn.com/abstract=3088726 or http://dx.doi.org/10.2139/ssrn.3088726

Jiasun Li (Contact Author)

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States

HOME PAGE: http://sites.google.com/site/jiasunlihome/

William Mann

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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