1. Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales
Sabrina Howell, NYU & NBER
Marina Niessner, Yale & AQR
David Yermack, NYU, ECGI & NBER

2. How to Make Millions with Initial Coin Offerings https://www. youtube

3. ICO outcomes (broadly viewed)
Any project that expressed availability of ICO investment (through a website publishing, ANN thread, or social media posting with a contribution address), did not have/had no intention of fulfilling project development duties with the funds, and/or was deemed by the community (message boards, website or other online information) to be a scam.
Source: Satis Group LLC,

4. ICOs in 2017 and 2018
2017
2018
Source:

5. Largest ICOs by amount raised
Block.one (EOS) $4.0 billion
Telegram Open Network $1.7 billion
Dragon Coin $320 million
Huobi $300 million
HDac $258 million
Filecoin $257 million
Tezos $232 million
Sirin Labs $158 million
Bancor $152 million
Bankera $151 million

6. Block.one’s $4 billion ICO May 2018

7. What is an ICO? Filecoin, launched by Protocol Labs

8. How does Filecoin work?
Filecoin plans to provide decentralized storage, using a global network of computers with available space
Customers will pay for storage
Storage nodes will bid to host files and earn tokens
Miners will earn tokens for validating files via a “proof of space” algorithm
The Filecoin “token” will be the only means of payment

9. Why doesn’t Filecoin use regular currency. See, e. g
Why doesn’t Filecoin use regular currency? See, e.g., Catalini and Gans (2018)
Co-opts customers through “network effects”
Similar to frequent flyer loyalty programs
Incentives to recruit other users
Reveals consumer demand prior to undertaking costly investment
Allows customers to share in the value created by the application
Equity holders retain ownership of the underlying platform

10. Allocation of Filecoin tokens 10% sold in August-Sept 2017: c
Allocation of Filecoin tokens 10% sold in August-Sept 2017: c. $200 mm FIL market value on December 27, 2018: c. $580 mm

11. Royal Albert Hall Constructed 1867-1871
“Known as Members of the Corporation (or Seatholders), these original founders acquired seats. . .
These arrangements continue to this day – currently the Members own 1,270 seats out of the Hall’s 5,
By acquiring permanent seats at the Hall the Seatholders have private property rights (personal estate, not real estate) which can be given or sold by one party to another. . . The charity exists subject to these permanent private property rights.” -

12. Precursors of tokens: Sports arena PSLs

13. Precursors of tokens: Social media

14. Precursors of tokens: Online gaming

15. Two major regulatory issues with ICOs
1. Are ICOs covered by the securities laws?
Of which country?
Why is this important?
Disclosure – cost of filing
Disclosure – release of competitive information
Potential liability, including for third parties
2. What are the tax consequences?
“I believe every ICO I’ve seen is a security”

16. The Crypto Valley Vitalik Buterin founded Ethereum in Zug; hundreds have followed

17. Sample coverage

18. Most tokens (74%) reside on the Ethereum blockchain
Ethereum provides a basic “ERC20” token template that can be customized by an issuer
An ERC20 token is really an Ethereum “smart contract” that can be activated by a future instruction or contingency
Once launched, an ERC20 token’s rules cannot be changed, and its supply cannot be increased

19. Method of distribution
Had a pre-sale 45%
Dynamic pricing 34%
Auction pricing 5%
Accepted ETH 66%
Accepted BTC 41%
Accepted LTC 9%
Accepted USD 10%
Accepted EUR 3%

20. Bonding and disclosure
Twitter page 97%
Website %
Telegram group 83%
White paper 81%
Budget for use of proceeds 57%
Source code posted on Github 66%
Lock-up period for founder 36%
VC-backed 11%

21. Criteria for “success”
Liquidity (Amihud)
Trading volume
Liquidity is the point of differentiation for a token compared to VC
We are seeking to capture market depth and interest, rather than short-term returns

22. Bonding and disclosure

23. Founder background

24. Token purpose and blockchain

25. ICO processes

26. Payment accepted

27. Raw returns Mean Median 1 week 29% -5% 1 month 76% -18% 3 months 263%
16%
6 months
370%
-1%
6-month abnormal returns vs. BTC: 229% (mean), -58% (median)

28. Are these attractive returns?
Probably not.
Enormous survivorship bias in the data, since we consider only ICOs that traded for 90 days after being launched.
Returns do not take account of true costs of acquisition
Mining fees
Prices negotiated in pre-sale
Median ICO badly underperforms both BTC and ETH as benchmarks.

29. Liquidity and volume after 20 weeks

30. Conclusions Investors clearly respond to aspects of ICO design
Utility features
Reduction of asymmetric information
Background of founder
ICO market is growing quickly and developing more liquidity