Are Blockchain Crowdsales the New 'Gold Rush'? Success Determinants of Initial Coin Offerings

Abstract

Initial Coin Offerings (ICOs) are a new and unregulated form of crowdfunding that raises funds through a blockchain by selling venture-related tokens or coins in exchange for legal tender or cryptocurrencies. In this paper, we establish token or coin tradability as the primary ICO success measure, and we develop a theoretical framework for how venture uncertainty, venture quality, and investor opportunity set interrelate. We use the largest available dataset to date, consisting of 1,009 ICOs from 2015 to March 2018. Our data highlights that venture uncertainty (not being on Github and Telegram, shorter whitepapers, higher percentage of tokens distributed) is negatively correlated, while higher venture quality (better connected CEOs and larger team size) is positively correlated, with ICO success. Moreover, providing a hard cap in a pre-ICO can help investors measure success in the pre-sale. This is another positive signal of funding success.

Keywords: Coin, Crowdfunding, Crowdsale, Cryptocurrency, Crypto Asset, Blockchain, Distributed Ledger, Equity Financing, Entrepreneurial Finance, Fintech, Initial Coin Offering, Token Offering

JEL Classification: E42, G15, L26