The Economics of Crypto Funds

66 Pages Posted: 15 Jun 2021 Last revised: 14 Apr 2022

See all articles by Paul P. Momtaz

Paul P. Momtaz

University of California, Los Angeles (UCLA) - Anderson School of Management; Technische Universität München (TUM) - TUM School of Management; University College London Center for Blockchain Technologies

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Date Written: June 11, 2021

Abstract

Crypto Funds (CFs) represent a novel investor type in entrepreneurial finance. CFs intermediate Decentralized Finance (DeFi) markets by pooling contributions from crowd-investors and investing in tokenized startups, combining sophisticated venture- and hedge-style investment strategies. We compile a unique dataset combining token-based crowdfunding (or Initial Coin Offerings, ICOs) data with proprietary performance data of CFs. CF-backed startup ventures obtain higher ICO valuations, outperform their peers in the long run, and benefit from token price appreciation around CF investment disclosure in the secondary market. Moreover, CFs beat the market by roughly 2.5% per month. Their outperformance is persistent, suggesting that CFs deliver abnormal returns because of skill, rather than luck. These performance effects for CFs and CF-backed startups are driven by a fund's investor network centrality. Overall, our study paves the way for research on what some refer to as the ''crypto fund revolution'' in entrepreneurial finance.

Keywords: Cryptocurrency, Token Offerings, ICOs, STOs, Blockchain, Entrepreneurial Finance, Hedge Funds, Venture Capital, Decenrtalized Finance, DeFi

JEL Classification: G24, G32, K22, L26

Suggested Citation

Momtaz, Paul P., The Economics of Crypto Funds (June 11, 2021). Available at SSRN: https://ssrn.com/abstract=3865240 or http://dx.doi.org/10.2139/ssrn.3865240

Paul P. Momtaz (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

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Los Angeles, CA 90095-1481
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Technische Universität München (TUM) - TUM School of Management ( email )

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Munich, 80333
Germany

University College London Center for Blockchain Technologies ( email )

UCL CBT UCL Computer Science
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London, London
United Kingdom

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