Initial Coin Offerings Market Research Articles

Conflicted Analysts and Initial Coin Offerings

This paper studies the contribution of analysts to the functioning and failure of the market for initial coin offerings (ICOs). The assessments of freelancing analysts exhibit biases because of reciprocal interactions of analysts with ICO team members. Even favorably rated ICOs tend to fail raising some capital when a greater portion of their ratings reciprocate prior ratings. Ninety days after listing on an exchange, the market capitalization relative to the initial funds raised is smaller for tokens with more reciprocal ratings. These findings suggest that conflicts of interest help explain the failure of ICOs. This paper was accepted by Bruno Biais, Special Section of Management Science: Blockchains and Crypto Economics. Funding: A. Barth acknowledges financial support from the Chaire Fintech at University Paris Dauphine - PSL. A. F. Wagner acknowledges financial support from the University of Zurich Research Priority Program “Financial market regulation.” This paper was initiated when A. F. Wagner was visiting the Center for Advanced Studies on the Foundations of Law and Finance, funded by the German Research Foundation under the project FOR 2774 at Goethe University Frankfurt. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2021.02928 .

De-Crypto-ing Signals in Initial Coin Offerings: Evidence of Rational Token Retention

Using the market for initial coin offerings (ICOs) as a laboratory, we provide evidence that entrepreneurs use retention to alleviate information asymmetry. The underlying technology and the absence of regulation make the ICO market well suited to study this question empirically. Using a hand-collected data set, we show that ICO issuers that retain a larger fraction of their tokens are more successful in their funding efforts and are more likely to develop a working product. Moreover, we find that retention is a stronger signal when markets are crowded, and investors do not have as much time to conduct due diligence. This paper was accepted by Will Cong, Special Section of Management Science: Blockchains and Crypto Economics. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.4631 .

How the quality of initial coin offering white papers influences fundraising: Using security token offerings white papers as a benchmark

How the quality of initial coin offering white papers influences fundraising: Using security token offerings white papers as a benchmark

A Fractal View on Losses Attributable to Scams in the Market for Initial Coin Offerings

Analogous to traditional Initial Public Offerings (IPO), Initial Coin Offerings (ICOs) represent an emerging channel through which firms can access external funding using the new evolving digital financial market for tokens. However, while ICOs represent an alternative funding channel for startups, the ICO market is essentially unregulated, which creates opportunities for fraud such as ‘ICO scams’. This paper addresses the question as to what the expected losses attributable to scams in the market for ICOs are. Using web scrapping techniques, all ICOs launched between August 2014 and December 2019 were first screened for accusations of fraud, before a novel methodological framework was employed to understand the true costs associated with scams. The findings reveal that 56.80% of ICOs were subject to scams, corresponding to 65.80% of the relevant market capitalization, estimated at USD 15.38 billion. Moreover, it is found that the loss distribution due to scam ICOs is governed by a fractal process. Specifically, the power law exponent for the distribution governing losses due to scam ICOs suggests that the second moment is not defined, rendering the sample mean unstable. Taken together, the results in this paper provide evidence that we have not yet seen the largest loss in the market for ICOs and are supportive of an urgent need for ICO market regulations from governments and regulatory agencies.

Endorsement Signals and Resource Attraction in New Markets: Lessons from the Emergence of ICOs

Past research shows that new firms can facilitate resource attraction by securing endorsements from prominent third parties. In new markets, however, it is often unclear which endorsers—and, therefore, which endorsement signals—are credible. We sought to understand how the effectiveness of various endorsement signals might change as new markets develop. To do so, we study the emergence of the global market for Initial Coin Offerings (ICOs), in which new firms raise money by selling “tokens”. Drawing on a sociocognitive approach to signaling, we propose that in the very early stages of a market, signal receivers rely on endorsement signals that resemble signals they know from other, more established markets. Over time, however, we expect that signal receivers will better assess signal credibility and focus more (less) on those signals for which they receive positive (negative) information. Our findings are generally consistent with these expectations; however, changes in signal effectiveness are especially pronounced for the endorsement signals of weakly-vetted third parties, whereas the signals of more strongly-vetted third parties exhibit stable, positive effects. Taken together, our findings shed light on signaling in new markets by showing how different signals may become more or less effective over time.

An Intelligent Model for Success Prediction of Initial Coin Offerings

Assessment of Initial Coin Offerings (ICOs) is crucial for investment decisions in the ICO market. Since most ICOs succeed in raising funds, failed ICOs must be discriminated against through intelligent classification methods. In this context, this research proposes an intelligent decision model for predicting ICOs’ success that merges both the Information Gain Directed Feature Selection (IGDFS) technique as a features rank procedure to select the discriminative features representing the intial pool of features for Genetic Algorithm (GA) to find the ICO’s optimal feature set and Fuzzy Support Vector Machine for Class Imbalance Learning (FSVM-CIL) to tackle the problem of imbalanced classification. Two benchmark datasets were used to examine the proposed hybrid model referred to as IGDFS-FSVM. The experimental results reveal that the proposed model that employs an intelligent technique for ICO’s feature selection outperforms state-of-the-art classifiers without features selection. In this regard, we conclude that the proposed hybrid model is a practical approach to support investment decisions in the ICO market.

Security token offerings

This paper posits that distinguishing security token offerings (STOs) from initial coin offerings (ICOs) is important for the study of entrepreneurial finance. We first provide a working definition of a security token and present an overview of the STO market using a unique STO sample. The STO activity developed after the end of the ICO market bubble. The STO market is, however, still a nascent market. STOs are geographically dispersed but concentrated in jurisdictions with accommodating securities laws. Next, we explore STO success factors. We show that various issuer and offering characteristics traditionally used in the ICO literature also matter for STO success. We also find that success is associated with good governance practices, consistent with the corporate finance literature. We conclude by discussing the implications of native digital securities, the next generation of security tokens, for entrepreneurial finance.

Signalling in Initial Coin Offerings: The Key Role of Entrepreneurs’ Self‐efficacy and Media Presence

By analyzing data of more than 1,000 initial coin offerings (ICOs) obtained from seven different ICO information platforms, we investigate the effectiveness of signals used by entrepreneurs to foster ICO funding success. In particular, we examine the effectiveness of venture quality (human capital), level of uncertainty (entrepreneurs’ self‐efficacy and ambiguity reduction), and level of familiarity among potential investors (media presence). Results imply that media presence and entrepreneurs’ self‐efficacy are effective signals in the ICO market and thus can increase funding success. Project initiators who communicate (more actively) via social media collect more funds than those who do not. Analogously, entrepreneurs appearing self‐efficacious with regard to the quality of their venture receive more funds.

What Determines Initial Coin Offering Success: A Cross-Country Study

We investigate the determinants of ICO campaigns' presence and success using data on 503 initial coin offerings (ICOs) from 60 countries that took place between 2015 and 2018. We took individual project perspective and country-wide perspective into account. Our findings show that expert ratings, insider retention, and resource-related signals, such as the number of team members and advisors, contribute positively to ICO funding success and post-ICO activity. Conversely, organizing presale and bonuses contribute negatively. Moreover, we established that countries' financial system development and ICO-related legal certainty boost the crypto-market. More importantly, we also document that countries' cultures foster ICO market development.

Security Token Offerings

This paper posits that distinguishing security token offerings (STOs) from initial coin offerings (ICOs) is important for the study of entrepreneurial finance. We first provide a working definition of a security token and present an overview of the STO market using a unique STO sample. The STO activity developed after the end of the ICO market bubble. The STO market is, however, still a nascent market. STOs are geographically dispersed but concentrated in jurisdictions with accommodating securities laws. Next, we explore STO success factors. We show that various issuer and offering characteristics traditionally used in the ICO literature also matter for STO success. We also find that success is associated with good governance practices, consistent with the corporate finance literature. We conclude by discussing the implications of native digital securities, the next generation of security tokens, for entrepreneurial finance.

Initial Coin Offerings

This paper examines the market for initial coin offerings (ICOs). ICOs are smart contracts based on blockchain technology that are designed for entrepreneurs to raise external finance by issuing tokens without an intermediary. Unlike existing mechanisms for early-stage finance, tokens potentially provide investors with rapid opportunities thanks to liquid trading platforms. The marketability of tokens offers novel insights into entrepreneurial finance, which I explore in this paper. First, I document that investors earn on average 8.2% on the first day of trading. However, about 40% of all ICOs destroy investor value on the first day of trading. Second, I explore the determinants of market outcomes and find that management quality and the ICO profile are positively correlated with the funding amount and returns, whereas highly visionary projects have a negative effect. Among the 21% of all tokens that get delisted from a major exchange platform, highly visionary projects are more likely to fail, which investors anticipate. Third, I explore the sensitivity of the ICO market to adverse industry events such as China’s ban of ICOs, the hack of leading ledgers, and the marketing ban on FaceBook. I find that the ICO market is highly susceptible to such environmental shocks, resulting in substantial welfare losses for investors.

The Wild West of ICOs

This chapter sets out to establish the key issues that have become central within the market for Initial Coin Offerings (ICOs). Within this context, we provide a brief overview of the existing literature based on ICOs around the world, while explaining the motivations and styles of criminality that have occurred, the methods that have been widely used by cryptocurrency thieves, the potential for the innovation of theft within the sector and the related problems that such technological progress can potentially generate, and the types of market agents that have set out to potentially misuse ICOs for a variety of reasons at both the sovereign and corporate level. As cryptocurrency markets continue to evolve, it is imperative that policy-makers and regulators continue to monitor the potential development of sophisticated manipulation and cyber-criminality techniques that have developed throughout the market for cryptocurrencies.

Initial Coin Offerings in Europe – The Current Legal Framework and its Consequences for Investors and Issuers

Various authorities are currently working on the regulation of new technologies in the financial sector. Initial Coin Offerings (ICOs) are under special consideration, as they enable entities to collect money with an extended range and without the involvement of intermediaries. The following paper provides an overview of the legal framework and implementation of Initial Coin Offerings in Europe. By analyzing different aspects, such as countries of ICO issuance, notable ICO industries and failure/success rates of ICOs, the European ICO market was characterized in a first step. Secondly, the current status of regulations within Europe as a whole and individual countries was investigated by using statements of European and national authorities. The key results of the paper indicate the rapid expansion of the European ICO market and the relevance for issuing companies and investors. In addition, several risks due to unstable and inconsistent legal frameworks in European countries and to a multitude of frauds are pointed out. Between European states, legal approaches vary widely, ranging from proactive to undefined approaches. This again makes issuing tokens difficult for globally acting companies as multiple legal frameworks must be considered and figured out. Moreover, different regulations can lead to a heterogeneous European ICO market with various investor protection standards.

Initial Coin Offerings (ICOs): benefits, risks and success measures

The initial coin offering is usually defined as a new, innovative way of raising funds used by organizations, companies, or entrepreneurs, attracting funds through a cryptographic exchange in exchange for the coins that can be sold, used for future products or services purchase or profit. This article provides an overview of the evolving ICO market and indicates the main advantages and risks of the ICO. It is pointed out that ICO offers many advantages, such as high liquidity, return on investment, availability, fast capital raising process, minimization of capital raising costs. Nonetheless, the noticeable benefits of ICOs are often available only when companies or investors agree to take considerable risks, caused by the information asymmetry, lack of investor protection, proper regulation and methodical guidance both for investors and entrepreneurs. Considering the novelty, volatility, emerging risks, growing popularity of the ICO market and the lack of research in the scientific literature, it is important to investigate the factors that influence the success of the ICO, which is usually defined as the amount of funds attracted, listing of the coins, return on investment, market capitalization or the duration of the ICO.

Initial coin offerings, asymmetric information, and loyal CEOs

A defining feature of initial coin offerings (ICOs) is that entrepreneurs bear the full marginal investment cost but profit only partially from the marginal investment payoff. This design may exacerbate agency conflicts inherent in corporate finance. As a consequence, signals of entrepreneurial quality such as CEO loyalty, which is an established concept in social psychology and can easily be linked to potential agency conflicts in corporate settings, might be a first-order determinant of economic outcomes in the ICO market. Consistent with this, I find that loyal CEOs have to offer lower financial incentives to attract investors and are still able to raise more proceeds, conduct ICOs more thoroughly, and are less likely to fail. The findings are consistent with the hypothesis that asymmetric information between entrepreneurs and investors entail agency costs that are decreasing in CEO loyalty.

ICO Market Report 2018/2019 – Performance Analysis of 2018's Initial Coin Offerings

Initial Coin Offerings (ICOs) are currently one of the most fashionable topics in the area of financial markets. For token issuers, they are a success story. In 2018 alone, more than $ 14 billion dollars have been raised in ICOs. From the investors’ perspective, however, things do not look so shiny. Lots of them claim to have lost significant amounts of money invested in tokens issued by more or less reputable companies. In this market report, we analyze the ICOs of 2018. We illustrate the ICO market of that year and scrutinize how prices of the issued tokens have developed until mid 2019. Thereby, we take the perspective of an investor that bought tokens initially from the issuer. More than 90% of 2018's ICOs were based on the Ethereum Blockchain. We found that investors, which invested in ICOs during 2018, had only roughly an 8% chance that their tokens traded above their ICO issue price after six months. These numbers have not changed by July 2019. Nine in ten tokens trade below their ICO price. More than 70% of tokens have lost substantially all their value. This could indicate that the market gets rid of the those ICOs which are initiated by companies without a proper product or without a serious intention to develop a sustainable business. This could help the ICO market as a whole to become mature. We will continue this research in an ICO Market Report 2019/2020.

Read me if you can! An analysis of ICO white papers

Initial Coin Offerings (ICOs) are a new form of venture capital financing that raised more than 30 billion US dollars between 2016 and 2019. ICOs opened up the venture capital market to a more diverse investor base previously limited to “sophisticated” investors. This study analyses 1,258 white papers and finds that the length is positively correlated with the amount raised during the ICO and the likelihood of successfully completing the ICO. In contrast, the readability grade of the white paper is only positively correlated with the amount raised. The study highlights the role of voluntary disclosure in the ICO market.

ICO Market Report 2019/2020 – Performance Analysis of 2019's Initial Coin Offerings

Initial Coin Offerings (ICOs) are still one of the most fashionable topics in the area of financial markets. For token issuers, they are a continuing to be a success story. In 2019 alone, more than $ 3,3 billion USD have been raised in ICOs. From the investors’ perspective, however, things do not look so shiny. Lots of them claim to have lost significant amounts of money invested in tokens issued by more or less reputable companies. In this market report, we analyze the ICOs of 2019. We illustrate the ICO market of that year and scrutinize how prices of the issued tokens have developed until mid 2020. Thereby, we take the perspective of an investor that bought tokens initially from the issuer. We found that investors, which invested in ICOs during 2019, had roughly a 17% chance that their tokens traded above their ICO issue price after six months (up from 8% in 2018). By July 2020, this number drops to 12%. Almost nine in ten tokens trade below their ICO price. More than 65% of tokens have lost substantially all their value. This could indicate that the market gets rid of the those ICOs which are initiated by companies without a proper product or without a serious intention to develop a sustainable business. This might help the ICO market as a whole to become mature. We further investigate how the ICO classes of 2017 and 2018 (which have been studied in previous reports) developed until mid 2020. Results show that the overall performance of tokens has become slightly worse. 2019's ICOs, on the other hand, are performing significantly better than 2018's ICOs again - a sign that the market has become more and more mature after the ICO hype in early 2018. Additionally, we compare tokens' performances against their counterpart in the traditional world of capital markets - IPOs. We find that shares issued in IPOs are performing significantly better on secondary markets than tokens issued in ICOs.

How Much Are We Willing To Lose in Cyberspace? On the Tail Risk of Scam in the Market for Initial Coin Offerings

From an entrepreneurial perspective, Initial Coin Offering (ICO) has become an alternative way for attaining funding for business projects using the new evolving digital financial market for tokens. Unfortunately, the majority of all ICOs are subject to scam which casts doubt on this new innovative tool for acquiring funding. Using a unique intensively hand-collected data set covering more than 5000 ICOs which have been launched in the August 2014–December 2019 period, we could identify 1014 ICOs exhibiting data on raised funding whereof 576 turned out to be scams projects. The cumulative losses due to scam in the ICO market correspond to $10.12 billion which is 66% of our identified overall market capitalization and highlights the enormous societal impact of this criminal activity. One novel aspect of our study is that it employs a recently proposed methodology based on ‘plug-in estimation’ to quantitatively computing the risk associated with scam in the market for ICOs. Our results suggest that employing naive statistics in risk management dramatically underestimates this risk. We argue that our findings have important implications for policy makers as they call for an urgent need for ICO market regulations from governments and regulatory agencies to protect investors.

Factors of Success of Initial Coin Offering. Empirical Evidence from 2016–2019

Since 2013, Initial Coin Offerings (ICO) have allowed companies to attract financing with the help of cryptocurrencies. Statistics of ICO shows that the ICO market is increasing and demand for funds continues to grow with claims of over $ 15 billion raised in the first half of 2018. The increasing volumes of investment in ICO projects as an alternative method to venture capital or IPO are caused by, for example, the possibility of reselling the received tokens at a higher price after the launch of the project or obtaining the company’s services at lower prices. While the importance of the topic is growing, there is the absence of fundamental works emphasizing the determinants of an ICO’s success. The scientific novelty of the forthcoming research consists in the formation of the model evaluation of ICO success. Using econometric analysis based on data for 1392 projects, we show that the volatility of the main cryptocurrencies has a significant impact on the success of ICO. The constraints of the platform for Smart Contacts (ERC-20) and dependence on the Ethereum volatility overcome all other factors. Our data contributes to existing literature and shows the insignificance e of the sector of the project, almost all location region and fl of infl e of quality of the team. This result may be explained by the uncertainty of the investor about the project (weak signals), absence of the regulation and legal framework. This result is beneficial for owners of companies since it is an argument for decreasing costs for marketing.