Initial Coin Offerings (ICOs): Debt or Equity?

Abstract

Initial Coin Offerings (ICOs) have recently emerged as a novel source of fund raising for startup entrepreneurs. The ease and flexibility inherent to ICOs are notably significant incentives for founders looking to raise funds. The glaring success of many ICOs over the past few years has further helped cement ICO’s place as a worthy alternative to traditional fund raising mechanisms. The duo of debt and equity, though starkly different, have for long been established as the primary sources in corporate finance. Over time, it has become almost instinctive to assume any new fundraising mechanism will fit squarely into either boxes or at least be a mishmash of both. This paper attempts to explore the position, if any, of ICOs vis-a-vis the traditional capital raising options of debt and equity.