To ICO or not to ICO – Empirical Analysis of Initial Coin Offerings and Token Sales

Abstract

The current paper is the holistic study on ICOs and token sales and presenting key stages of the industry evolution from 2013 to date. We argue that blockchain technology has created a new viable vehicle for early stage capital raising. We trace the evolution of ICOs and token sales using a hand-constructed complete database from small contribution campaigns from a project’s backers and the community in 2013, to the multibillion-dollar industry as it is at the beginning of 2018. We show that successful ICOs tend to be more self-compliant with the forthcoming potential regulation and spend more effort on signalling their quality and reducing the asymmetric information problem. We also look into various proxies for ICOs’ success and show these are only weakly correlated with projects’ tokens long-run performance that is instead mostly influenced by the Ether cryptocurrency performance.

Keywords: Financial industry, crowdfunding, venture capital, ICOs, token sales, blockchain, distributed ledger technology, DLT, tokenomics, blockchain economics, token models, crypto assets, cryptocurrencies, token offering, Ethereum, bitcoin, fintech, financial technology

JEL Classification: G32, G11, E22, M13