The determinants of initial coin offering success: A cross-country study of 2,568 ICOs

Oskar Kowalewski - IESEG School of Management and Polish Academy of Sciences;

Paweł Pisany - Polish Academy of Sciences;

Muhammad Farooq Ahmad - KEMA Business School.

-- Providing innovative business ventures with funding at an early stage of development is a crucial challenge in fostering entrepreneurship. Modern technologies are reshaping financial systems globally and opening new ways of raising capital for entrepreneurs. One of the cutting-edge technologies that are currently gaining momentum in finance is the distributed ledger technology (DLT). Typically, the DLT uses a peer-to-peer network of computer nodes to verify the authenticity of transactions, it is sometimes in a simplified manner equated with a narrower term —blockchain technology. This technology opens the possibility of conducting Initial Coin Offerings (ICOs), in which investors provide the company with funding in exchange for tokens (digital coins).

Tokens may have features of financial instruments. However, they can also incorporate some utility rights, especially using the product or service when finally launched on the market. ICOs are a kind of mix of crowdfunding and blockchain. They are quite similar to Initial Public Offering (IPO). However, their uniqueness depends on blockchain-based crypto-assets and avoiding the usual regulations and restrictions on traditional IPOs (Allen et al. 2020). The total amount raised worldwide through ICOs was quite substantial; it amounts to $10 billion in 2017 and almost $11.4 billion in 2018 (Pozzi, 2019). However, the dynamic growth of ICO declined in 2019, the funding raised was estimated at $3.3 billion (ICObench).

All this makes ICO a very interesting phenomenon which, in our opinion, deserves an in-depth analysis. We provide this in our recent study, "What determines Initial Coin Offering success: A cross-country study," which aims to empirically investigate elements of the ICO process that determine the success of the campaign. Additionally, we supplement our quantitative research with a country-level perspective and deal with interlinkages between ICOs and the financial, legal, and cultural environment.

Our study's initial sample consisted of 2,568 ICOs listed on ICObench, which were made public from August 2015 until September 2018. We retrieved details about the ICO either from ICObench or the company's website. However, the detailed information on ICO is available only for a limited number of projects. As a result, the final sample consisted of 503 ICOs from 60 countries globally.

Information asymmetry between the project team and the potential investors is high because ICO is an unregulated market segment and no disclosure obligations apply. Our analysis shows that high-quality projects should try to mitigate this problem by signaling quality and disclosing more information to investors. We show that projects with high expert ratings and several advisers are likely to be successful during ICO, and perform significantly in the long term. As well, large teams with insider retention are increasing ICO chances of success.

Conversely, implementing excessive promotion tools (presale programs or bonuses for early investors) during the ICO may be counter-productive as it potentially leads to a negative impression of unreliable marketing. Nevertheless, we show that costly resource-related signals are effective in ICO promotion.

Moreover, we found that countries' environments may determine the ICOs' activities. ICOs are likely to take place and be successful in economically developed countries with good financial and ICT infrastructure. However, interestingly, we established that global economic policy uncertainty does not determine the activity of ICOs. We documented the role of legal certainty, that is, the presence of hard and soft law referring to the legal nature of ICOs and tokenized assets. Furthermore, it seems that the common-law supports the development of ICO markets.

Further, we investigated a culture's role in a particular country for the ICO market, using cultural dimensions developed by Geert Hofstede (1980). We showed that long term oriented and less indulgent national cultures foster the ICO market. Ultimately, alternative tech-based finance finds a favorable environment among patient people trying to make conscious decisions regardless of information scarcity.


This research was supported by the National Science Center (NCN), Poland, under grant no. 2019/33/B/HS4/00369.

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