Initial Coin Offerings and the Value of Crypto Tokens

Christian Catalini and Joshua Gans

No 24418, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explores how entrepreneurs can use initial coin offerings — whereby they issue crypto tokens and commit to only accept those tokens as payment for their products — to fund venture start-up costs. We show that the ICO mechanism allows entrepreneurs to generate buyer competition for the token, giving it value. We also find that venture returns are independent of any committed growth in the supply of tokens over time, but that initial funds raised are maximized by setting that growth to zero to encourage saving by early participants. Nonetheless, since the value of the tokens depends on a single period of demand, the ability to raise funds is more limited than in traditional equity finance. Furthermore, a lack of commitment in monetary policy undermines saving behavior, hence the cost of using tokens to fund start-up costs is inflexibility in future capital raises. Crypto tokens can also facilitate coordination among stakeholders within digital ecosystems when network effects are present.

JEL-codes: E42 L12 L26 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-ent, nep-mac, nep-mic and nep-pay
Note: PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

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