Regulatory and Market Challenges of Initial Coin Offerings
51 Pages Posted: 2 Jul 2019 Last revised: 5 Jul 2019
Date Written: April 1, 2019
This article analyzes the main problems and the solutions adopted in the market for Initial Coin Offerings (ICO), an alternative financing solution that has experienced spectacular growth and notoriety in recent years. This market relies on the use of Blockchain protocols and is, therefore, characterized as disintermediated, decentralized and unregulated. The problems we identify in this article, their severity, and the solutions currently being adopted to address them, lead us to conclude that it is unlikely that either of these characteristics will survive in the near future. Our results also indicate that the concerns expressed by regulators and other market agents regarding ICO markets are well founded. We find it particularly disturbing that such a new, revolutionary market already displays many of the problems of traditional financial markets, and that these problems were exactly the ones that occurred at the genesis of the last financial crisis.
Keywords: blockchain, initial coin offerings, regulation, cryptoassets and cryptoeconomy, trust modeling, fairness and accountability, decentralization and disintermediation risks, entrepreneurial finance, investment crowdfunding
JEL Classification: K22, G32, O16, L26
Suggested Citation: Suggested Citation