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

Miglo, Anton. 2021. STO vs. ICO: A Theory of Token Issues under Moral Hazard and Demand Uncertainty. Journal of Risk and Financial Management 14: 232. https://doi.org/10.3390/jrfm14060232

35 Pages Posted: 16 Jun 2021

Multiple version iconThere are 2 versions of this paper

Date Written: May 21, 2021

Abstract

This paper considers a financing problem for an innovative firm that is launching a web-based platform. 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 hybrid tokens can be 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 market demand for the product). This finding is consistent with some recent evidence. The paper also generates new predictions regarding the effect of different variables on the choice of financing method that have not yet been tested

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 (May 21, 2021). Miglo, Anton. 2021. STO vs. ICO: A Theory of Token Issues under Moral Hazard and Demand Uncertainty. Journal of Risk and Financial Management 14: 232. https://doi.org/10.3390/jrfm14060232, Available at SSRN: https://ssrn.com/abstract=3866799

Anton Miglo (Contact Author)

University of Salford ( email )

Salford, Greater Manchester M5 4WT
United Kingdom

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