The ICO Rating Game: Biased Ratings of Crypto Experts in Initial Coin Offerings

Abstract

Initial coin offerings (ICO) rely on crypto expert ratings to overcome asymmetric information in fundraising, though experts can provide optimistic ratings to promote ICO fundraising due to their opportunities to act as advisors in subsequent ICOs. Using ratings on ICOBench.com, we find that expert ratings exhibit systematic optimism relative to algorithm-generated ratings. Further, experts who give optimistic ratings to fundraising successful ICOs are more likely to be hired as advisors in subsequent ICOs. Moreover, ICOs hiring experts as advisors are associated with greater likelihood of fundraising success but not of exchange listing nor one-year survival. We interpret our findings to indicate that crypto experts help ICO startups raise funds but do not help investors achieve superior returns.

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

JEL Classification: G1, G2, G3, M4