Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales

Sabrina T. Howell, Marina Niessner, David Yermack

NBER Working Paper No. 24774
Issued in June 2018, Revised in April 2019
NBER Program(s):Corporate Finance, Law and Economics, Productivity, Innovation, and Entrepreneurship

Initial coin offerings (ICOs) have emerged as a new mechanism for entrepreneurial finance, with parallels to initial public offerings, venture capital, and pre-sale crowdfunding. In a sample of more than 1,500 ICOs that collectively raise $12.9 billion, we examine which issuer and ICO characteristics predict success, measured using real outcomes (employment and issuer failure) and financial outcomes (token liquidity and volume). Success is associated with disclosure, credible commitment to the project, and quality signals. An instrumental variables analysis finds that ICO token exchange listing causes higher future employment, indicating that access to liquidity has important real consequences for the enterprise.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w24774