Network externalities in the long-term performance of ICOs

Abstract

This study examines the impact of technology and network externalities on exchange-listed Initial Coin Offerings (ICOs). Utilising an online database comprising of self-reported ICO characteristics, measures of post-ICO performance, along with information on business social networks, higher fundraising figures are found to contribute positively to the ICOs long-term success. This positive impact is multiplied by six times when fundraising is conducted to an existing, proprietary blockchain. This is explained by the network effect. The modified information ratio measure is used to approximate the quality signalling of ICO organisations using price time series and benchmarking these to already functioning blockchain technology, e.g. ethereum in the long term. The ICO sample's mean trading period on an exchange is 1.5 years and is used for long-period asset analysis. Additionally, the cointegration to the market technology benchmark is found to have a large, significant negative effect on long-term ICO organisational success as this indicates lower ICO intrinsic value.