The Incentives of Crypto Experts in Initial Coin Offerings

40 Pages Posted: 4 Feb 2021 Last revised: 9 Apr 2021

See all articles by Baixiao Liu

Baixiao Liu

Florida State University

John J. McConnell

Purdue University

Jingfang Wang

Florida State University

Date Written: February 1, 2021

Abstract

The initial coin offering (ICO) market relies on the “wisdom of crowds”, ratings given by the collective opinion of crypto experts, to overcome asymmetric information problems in the fundraising process. We investigate the incentives of crypto experts to provide informative ratings in ICOs. We conjecture that experts are incentivized to provide optimistic ratings to promote ICO fundraising success due to their future opportunities as advisors in other ICOs, though their optimism is bounded by their credibility in the eyes of crypto investors. We examine our conjectures using ICO ratings on ICOBench.com during the period of 2016 to 2019. Consistent with our conjectures, we find that expert ratings in ICOs exhibit systematic optimism, particularly so when the ratings are given by experts that are assigned with more weight by the rating platforms. The optimism in expert ratings is associated with higher likelihood of fundraising success but not that of exchange listing and survival. Further, experts who give optimistic ratings to a greater number of successful ICOs and to a smaller fraction of failed ICOs are more likely to be hired as advisors in other ICOs.

Keywords: Initial Coin Offering, Wisdom of Crowds, Crypto Experts, Incentives, Ratings, Optimism

JEL Classification: G1, G2, G3, M4

Suggested Citation

Liu, Baixiao and McConnell, John J. and Wang, Jingfang, The Incentives of Crypto Experts in Initial Coin Offerings (February 1, 2021). Available at SSRN: https://ssrn.com/abstract=3776935 or http://dx.doi.org/10.2139/ssrn.3776935

Baixiao Liu (Contact Author)

Florida State University ( email )

Tallahasse, FL 32306
United States

John J. McConnell

Purdue University ( email )

MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)

Jingfang Wang

Florida State University ( email )

Tallahasse, FL 32306
United States

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