NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Initial Coin Offerings and the Value of Crypto Tokens

Christian Catalini, Joshua S. Gans

NBER Working Paper No. 24418
Issued in March 2018, Revised in March 2019
NBER Program(s):The Productivity, Innovation, and Entrepreneurship Program

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.

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Document Object Identifier (DOI): 10.3386/w24418

 
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