Coin-Operated Capitalism

105 Pages Posted: 18 Jul 2018 Last revised: 11 Dec 2018

See all articles by Shaanan Cohney

Shaanan Cohney

University of Pennsylvania, School of Engineering & Applied Science; University of Pennsylvania Law School

David A. Hoffman

University of Pennsylvania Law School; Cultural Cognition Project at Yale Law School

Jeremy Sklaroff

University of Pennsylvania Law School - Student/Alumni/Adjunct

David A. Wishnick

University of Pennsylvania - Center for Technology, Innovation & Competition

Date Written: July 17, 2018

Abstract

This Article presents the legal literature’s first detailed analysis of the inner workings of Initial Coin Offerings. We characterize the ICO as an example of financial innovation, placing it in kinship with venture capital contracting, asset securitization, and (obviously) the IPO. We also take the form seriously as an example of technological innovation, where promoters are beginning to effectuate their promises to investors through computer code, rather than traditional contract. To understand the dynamics of this shift, we first collect contracts, “white papers,” and other contract-like documents for the fifty top-grossing ICOs of 2017. We then analyze how such projects’ software code reflected (or failed to reflect) their contractual promises. Our inquiry reveals that many ICOs failed even to promise that they would protect investors against insider self-dealing. Fewer still manifested such contracts in code. Surprisingly, in a community known for espousing a technolibertarian belief in the power of “trustless trust” built with carefully designed code, a significant fraction of issuers retained centralized control through previously undisclosed code permitting modification of the entities’ governing structures. These findings offer valuable lessons to legal scholars, economists, and policymakers about the roles played by gatekeepers; about the value of regulation; and the possibilities for socially valuable private ordering in a relatively anonymous, decentralized environment.

Keywords: ICO, blockchain, fintech, smart contract, IPO, bitcoin, initial coin offering, venture capital

JEL Classification: G1, G18, G2, G24, G3, K12, K22, M13

Suggested Citation

Cohney, Shaanan and Hoffman, David A. and Sklaroff, Jeremy and Wishnick, David, Coin-Operated Capitalism (July 17, 2018). Columbia Law Review, Forthcoming; U of Penn, Inst for Law & Econ Research Paper No. 18-37. Available at SSRN: https://ssrn.com/abstract=3215345 or http://dx.doi.org/10.2139/ssrn.3215345

Shaanan Cohney

University of Pennsylvania, School of Engineering & Applied Science ( email )

PA
United States

University of Pennsylvania Law School ( email )

Philadelphia, PA
United States

David A. Hoffman (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

Cultural Cognition Project at Yale Law School

127 Wall St
New Haven, CT 06520
United States

Jeremy Sklaroff

University of Pennsylvania Law School - Student/Alumni/Adjunct ( email )

Philadelphia, PA
United States

David Wishnick

University of Pennsylvania - Center for Technology, Innovation & Competition ( email )

Philadelphia, PA
United States

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