Entrepreneurial Incentives and the Role of Initial Coin Offerings

Rodney Garratt and Maarten van Oordt

Staff Working Papers from Bank of Canada

Abstract: Initial coin offerings (ICOs) are a new mode of financing start-ups that saw an explosion in popularity in 2017 but declined in popularity in the second half of 2018 as regulatory pressure, instances of fraud and reports of poor performance began to undermine their reputation. We examine whether ICOs are a passing fad or a worthwhile form of financing with beneficial economic properties. We do so by examining how financing a start-up through an ICO changes the incentives of an entrepreneur relative to debt and venture capital financing. Depending on market characteristics, an ICO can result in a better or worse alignment of the interests of the entrepreneur and the investors compared with conventional modes of financing. Notably, an ICO can be the only form of financing that induces optimal effort and hence maximizes the net present value of the start-up, and there are projects that should not take place at all unless they can be financed through an ICO.

Keywords: Asset Pricing; Exchange rates (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2019-05
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-ent
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2019/05/swp2019-18.pdf Full text (application/pdf)

Related works:
Journal Article: Entrepreneurial incentives and the role of initial coin offerings (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:19-18

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().