Initial Coin Offerings

49 Pages Posted: 22 Apr 2018 Last revised: 16 May 2019

See all articles by Paul P. Momtaz

Paul P. Momtaz

University of California, Los Angeles (UCLA) - Anderson School of Management; University College London Center for Blockchain Technologies

Date Written: July 7, 2018


This paper presents a first-ever empirical examination of the market for initial coin offerings (ICOs). ICOs are smart contracts, based on blockchain technology, that are designed for entrepreneurs to raise external finance by issuing tokens without an intermediary. Unlike existing mechanisms for early-stage finance, tokens provide investors with an anytime-exit opportunity thanks to liquid trading platforms. The marketability of tokens offers novel insights into entrepreneurial finance, which I explore in this paper. First, I document that the average ICO firm underprices by 8.2%, which means the average entrepreneur leaves $1.1 million ''on the table.'' However, about 40% of all ICOs destroy investor value on the first day of trading. Second, I explore the determinants of market outcomes and find that management quality and the ICO profile are positively correlated with the funding amount and returns, whereas highly visionary projects have a negative effect. Among the 21% of all tokens that get delisted, highly visionary projects are more likely to fail, which investors anticipate. Third, I explore the sensitivity of the ICO market to adverse industry events such as China's ban of ICOs, the hack of leading ledgers, and the marketing ban on FaceBook. I find that the ICO market is highly susceptible to such environmental shocks, resulting in substantial welfare losses for investors.

Keywords: Initial Coin Offering, ICO, Token Sale, Token Offering,Cryptocurrency, Blockchain, Distributed Ledger Technology, Crowdfunding, Entrepreneurial Finance

JEL Classification: G24, G32, K22, L26

Suggested Citation

Momtaz, Paul P., Initial Coin Offerings (July 7, 2018). Available at SSRN: or

Paul P. Momtaz (Contact Author)

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

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

University College London Center for Blockchain Technologies ( email )

UCL CBT UCL Computer Science
Malet Place London WC
London, London
United Kingdom

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