Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales

💡 Takeaway:
ICOs that issue utility tokens, publish transparent white papers, and get their tokens listed on exchanges are more likely to succeed operationally and avoid failure.

Key Idea: What Is This Paper About?

This study analyzes over 1,500 ICOs to understand what predicts success—measured as employment growth and survival. The authors find that credible commitment, transparency, token utility, and exchange listing are key drivers. Listing alone causally boosts employment.

Economic Rationale: Why Should This Work?

📌 Relevant Economic Theories and Justifications:

• Asymmetric Information Theory: Disclosures (e.g., white papers, budgets) help reduce uncertainty for investors.
• Liquidity and Signaling: Exchange listing not only increases liquidity but also serves as a quality signal.
• Network Effects: Utility tokens incentivize early users and promote adoption.
• Bonding and Agency Costs: Vesting schedules and incentive pools align founder and investor interests.

📌 Why It Matters:
Understanding what drives ICO success allows traders and token investors to screen for long-term winners and avoid vaporware projects.

How to Do It: Data, Model, and Strategy Implementation

Data Used (If Applicable)

• Data Sources: TokenData, CoinMarketCap, GitHub, LinkedIn
• Time Period: ICOs launched until April 2018, tracked through July 2019
• Asset Universe: 1,520 ICOs across 60 countries

Model / Methodology (If Applicable)

• Regression models to predict employment and failure
• Instrumental Variable (IV) analysis using Ethereum Classic (ETC) prices to identify causal impact of listing
• Control variables include: white paper presence, token utility, VC backing, founder background

Trading Strategy (If Applicable)

This paper does not propose a trading strategy but provides criteria to build one.
A sample strategy could be:

1. Signal Generation:
   • Long tokens that have:
     • Utility value
     • Exchange listing
     • Transparent white paper + roadmap
     • Founder with prior entrepreneurial/computer science experience
2. Portfolio Construction: Equal-weight across qualifying tokens
3. Rebalancing Frequency: Quarterly or semiannually

Key Table or Figure from the Paper

📌 Explanation:

• Table 4 (above) shows that utility tokens, white papers, vesting, and VC-backing are positively associated with employment growth.
• Table 5, in the paper, confirms these same characteristics lower failure rates, making them useful predictors for screening good tokens.

Final Thought

💡 ICOs with real utility, strong disclosure, and exchange access are not just hype—they’re foundations for actual growth. 🚀

Paper Details (For Further Reading)

• Title: Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales
• Authors: Sabrina T. Howell, Marina Niessner, David Yermack
• Publication Year: 2020
• Journal/Source: The Review of Financial Studies
• Link: https://www.jstor.org/stable/10.2307/48587204