Factors of Success of Initial Coin Offering. Empirical Evidence from 2016–2019
https://doi.org/10.26794/2587-5671-2019-23-5-30-49
Abstract
Since 2013, Initial Coin Offerings (ICO) have allowed companies to attract financing with the help of cryptocurrencies. Statistics of ICO shows that the ICO market is increasing and demand for funds continues to grow with claims of over $ 15 billion raised in the first half of 2018. The increasing volumes of investment in ICO projects as an alternative method to venture capital or IPO are caused by, for example, the possibility of reselling the received tokens at a higher price after the launch of the project or obtaining the company’s services at lower prices. While the importance of the topic is growing, there is the absence of fundamental works emphasizing the determinants of an ICO’s success. The scientific novelty of the forthcoming research consists in the formation of the model evaluation of ICO success. Using econometric analysis based on data for 1392 projects, we show that the volatility of the main cryptocurrencies has a significant impact on the success of ICO. The constraints of the platform for Smart Contacts (ERC-20) and dependence on the Ethereum volatility overcome all other factors. Our data contributes to existing literature and shows the insignificance e of the sector of the project, almost all location region and fl of infl e of quality of the team. This result may be explained by the uncertainty of the investor about the project (weak signals), absence of the regulation and legal framework. This result is beneficial for owners of companies since it is an argument for decreasing costs for marketing.
About the Authors
A. S. Myalo
National Research University Higher School of Economics
Russian Federation
Russian Federation
Alina S. Myalo — HSE Postgraduate Student, Curator of the Bachelor’s Program, ICEF NRU HSE
Moscow
N. Yu. Glukhov
National Research University Higher School of Economics
Russian Federation
Russian Federation
Nikita Yu. Glukhov — student
Moscow
References
1. Diemers D., Arslanian H., McNamara G., Dobrauz G., Wohlgemuth L. Initial coin offerings: A strategic perspective. Strategy&/PwC. 2018. URL: https://www.pwc.ch/en/publications/2018/20180628_PwC%20S&%20CVA%20ICO%20Report_EN.pdf
2. Frankenfield J. Smart contracts. Investopedia. 2019. URL: https://www.investopedia.com/terms/s/smart-contracts.asp
3. Chanson M., Gjoen J., Risius M., Wortmann F. Initial coin offerings (ICOs): The role of social media for organizational legitimacy and underpricing. 2018. URL: http://cocoa.ethz.ch/downloads/2018/10/None_ICIS2018_final.pdf
4. Davies A. Five best smart contract platforms for 2019. DevTeam.SpaceTM. 2019. URL: https://www.devteam.space/blog/5-best-smart-contract-platforms-for-2019/
5. Mulers M. Comparison of smart contract platforms. Hackernoon. 2018. URL: https://hackernoon.com/ comparison-of-smart-contract-platforms-2796e34673b7
6. Howell S., Niessner M., Yermack D. Initial coin offerings: Financing growth with cryptocurrency token sales. ECGI Working Paper Series in Finance. 2018;(564). URL: https://ecgi.global/sites/default/files/working_papers/documents/finalhowellniessneryermack.pdf
7. Belleflamme P., Lambert T., Schwienbacher A. Crowdfunding: Tapping the wright crowd. Journal of Business Venturing. 2014;29(5):585–609. DOI: 10.1016/j.jbusvent.2013.07.003
8. Ferreira F., Pereira L. Success factors in a reward and equity based crowdfunding campaign. In: 2018 IEEE Int. conf. on engineering, technology and innovation (ICE/ITMC) (Stuttgart, June 17–20, 2018). New York, IEEE; 2018. DOI: 10.1109/ICE.2018.8436308
9. Ahlers G., Cumming D., Günther C., Schweizer D. Signaling in equity crowdfunding. Entrepreneurship Theory and Practice. 2015;39(4):955–980. DOI: 10.1111/etap.12157
10. Xiao S., Tan X., Dong M., Qi J. How to design your project in the online crowdfunding market? Evidence from Kickstarter. In: Proc. 35th Int. conf. on information systems (ICIS 2014): Building a better world through information systems (Auckland, Dec. 14–17, 2014). Atlanta, GA: Association for Information Systems; 2014. URL: https://pdfs.semanticscholar.org/ddbf/6d95218f6f2654a45e06c785bd 62732d6a2a.pdf
11. Mollick E. The dynamics of crowdfunding: An exploratory study. Journal of Business Venturing. 2014;29(1):1–16. DOI: 10.1016/j.jbusvent.2013.06.005
12. Xu A., Yang X., Rao H., Fu W.-T., Huang S.W., Bailey B.P. Show me the money! An analysis of project updates during crowdfunding campaigns. In: Proc. 32nd annu. ACM conf. on human factors in computing systems (Toronto, Apr. 26 May 01, 2014). New York: Association for Computing Machinery; 2014:591–600. DOI: 10.1145/2556288.2557045
13. Koch J.-A., Siering M. Crowdfunding success factors: The characteristics of successfully funded projects on crowdfunding platforms. In: Proc. 23rd European conf. on information systems (Münster, May 26–29, 2015). 2015. URL: https://aisel.aisnet.org/cgi/viewcontent.cgi?article=1105&context=ecis2015_cr
14. Li Y., Cao H. D., Zhao, T. J. Factors affecting successful equity crowdfunding. Journal of Mathematical Finance. 2018;8(2):446–456. DOI: 10.4236/jmf.2018.82028
15. Zvilichovsky D., Inbar Y., Barzilay O. Playing both sides of the market: Success and reciprocity on crowdfunding platforms. SSRN Electronic Journal. 2013. DOI: 10.2139/ssrn.2304101
16. Adhami S., Giudici G., Martinazzi S. Why do businesses go crypto? An empirical analysis of initial coin offerings. Journal of Economics & Business . 2018;100:64–75. DOI: 10.1016/j.jeconbus.2018.04.001
17. Yadav M. Exploring signals for investing in an initial coin offering (ICO). SSRN Electronic Journal. 2017. DOI: 10.2139/ssrn.3037106
18. Benedetti D., Kostovetsky L. Digital tulips? Returns to investors in initial coin offerings. SSRN Electronic Journal. 2018. DOI: 10.2139/ssrn.3182169
19. Fisch C. Initial coin offerings (ICOs) to finance new ventures. Journal of Business Venturing. 2019;34(1):1–22. DOI: 10.1016/j.jbusvent.2018.09.007
20. Amsden R., Schweizer D. Are blockchain crowdsales the new ‘gold rush’? Success determinants of initial coin offerings. 2018. URL: http://www.fmaconferences.org/NewOrleans/Papers/ICO_final.pdf
21. Momtaz P. Initial coin offerings. SSRN Electronic Journal. 2018. DOI: 10.2139/ssrn.3166709
22. Polasik M., Piotrowska A., Wisniewski T., Kotkowski R., Lightfoot G. Price fluctuations and the use of bitcoin: An empirical inquiry. International Journal of Electronic Commerce. 2015;20(1):9–49. DOI: 10.1080/10864415.2016.1061413
23. Sovbetov Y. Factors influencing cryptocurrency prices: Evidence from Bitcoin, Ethereum, Dash, Litcoin, and Monero. Journal of Economics and Financial Analysis. 2018;2(2):1–27. DOI: 10.1991/jefa.v2i2.a16
24. Bijl L., Kringhaug G., Molná P., Sandvik E. Google searches and stock returns. International Review of Financial Analysis. 2016;45:150–156. DOI: 10.1016/j.irfa.2016.03.015
25. Lyandres E., Palazzo B., Rabetti D. Do tokens behave like securities? An anatomy of initial coin offerings. SSRN Electronic Journal. 2019. DOI: 10.2139/ssrn.3287583
26. Boreiko D., Sahdev K. To ICO or not to ICO — Empirical analysis of initial coin offerings and token sales. SSRN Electronic Journal. 2018. DOI: 10.2139/ssrn.3209180
27. Burns L., Moro A. What makes an ICO successful? An investigation of the role of ICO characteristics, team quality and market sentiment. SSRN Electronic Journal. 2018. DOI: 10.2139/ssrn.3256512
28. Nordlöf H. Different ways of defining and measuring company size when studying its effects on OHS: A literature study. In: 11th Int. symp. on human factors in organisational design and management (ODAM) (Copenhagen, Aug. 17–20, 2014). Helsinki: Nordic Ergonomics Society; 2014:587–593. URL: https://pdfs.semanticscholar.org/868a/7aed077ee6c6ea6883402483a110ddce6302.pdf
29. Lamarre E., May B. Ten trends shaping the Internet of Things business landscape. McKinsey. 2019. URL: www.mckinsey.com/business-functions/digital-mckinsey/our-insights/ten-trends-shaping-theinternet-of-things-business-landscape
30. Lutskina E., Luzgina A. Crowdfunding and ICO. Belarusian Economic Research and Outreach Center. 2018. URL: http://www.beroc.by/webroot/delivery/files/Kraudfanding-ICO1508.pdf (In Russ.).
Review
For citations:
Myalo A.S., Glukhov N.Yu. Factors of Success of Initial Coin Offering. Empirical Evidence from 2016–2019. Finance: Theory and Practice. 2019;23(5):30-49. https://doi.org/10.26794/2587-5671-2019-23-5-30-49
Views:
1901
Email this article 