Decentralized Finance, Crypto Funds, and Value Creation in Tokenized Firms

63 Pages Posted: 11 May 2022 Last revised: 16 Mar 2023

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

Niclas Dombrowski

University of Hamburg

Wolfgang Drobetz

University of Hamburg

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: May 7, 2022

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 primary and secondary markets for tokens. We compile a unique dataset that merges blockchain-based crowdfunding (or Initial Coin Offering, ICO) data with proprietary CF performance data. 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 themselves beat the market by roughly 2.5% per month. Outperformance is persistent, indicating that CFs generate abnormal returns because of their skills rather than luck. The positive valuation and performance effects for CF-backed startups and CFs are higher for CFs with more central investor networks.

Keywords: Crypto Funds (CFs), Initial Coin Offering (ICO), Decentralized Finance (DeFi), Blockchain-based Crowdfunding, Entrepreneurial Finance

JEL Classification: G24, G32, K22, L26

Suggested Citation

Cumming, Douglas J. and Dombrowski, Niclas and Drobetz, Wolfgang and Momtaz, Paul P., Decentralized Finance, Crypto Funds, and Value Creation in Tokenized Firms (May 7, 2022). Available at SSRN: https://ssrn.com/abstract=4102295 or http://dx.doi.org/10.2139/ssrn.4102295

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

Niclas Dombrowski

University of Hamburg ( email )

Hamburg

Wolfgang Drobetz

University of Hamburg ( email )

Moorweidenstrasse 18
Hamburg, 20148
Germany

Paul P. Momtaz (Contact Author)

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

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstr. 21
Munich, 80333
Germany

University College London Center for Blockchain Technologies ( email )

UCL CBT UCL Computer Science
Malet Place London WC
London, London
United Kingdom

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