STO vs ICO: A Theory of Token Issues Under Moral Hazard and Demand Uncertainty

28 Pages Posted: 17 Sep 2019

Multiple version iconThere are 2 versions of this paper

Date Written: September 8, 2019


This paper considers a financing problem for an innovative firm that is considering launching a web-based platform. Our model is the first one that analyzes an entrepreneur's choice between security tokens (via a security token offering (STO)) and utility tokens (via initial coin offering (ICO)). The entrepreneur on one hand faces a large degree of demand uncertainty on his product and on the other hand has to deal with incentive problems of professional blockchain participants who contribute to the development and sales of the product. We argue that utility tokens with profit rights are a better option for the firm compared to straight utility tokens or security tokens because they help the firm better deal with both the moral hazard problems (via profit sharing incentives) and demand uncertainty (they help the firm learn the product demand). This finding is consistent with some recent evidence. The paper also generates new predictions that have not been tested so far.

Keywords: Entrepreneurial Finance; Blockchain; Initial Coin Offering; Security Token Offering; Moral Hazard; Demand Uncertainty; FinTech

JEL Classification: D82, G32, L11, L26, M13

Suggested Citation

Miglo, Anton, STO vs ICO: A Theory of Token Issues Under Moral Hazard and Demand Uncertainty (September 8, 2019). Available at SSRN: or

Anton Miglo (Contact Author)

University of Glasgow ( email )

United Kingdom

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