• Corpus ID: 19671436

Regulation of Initial Coin Offerings ∗

@inproceedings{Li2017RegulationOI,
  title={Regulation of Initial Coin Offerings ∗},
  author={Jiasun Li and William Mann},
  year={2017}
}

• Jiasun Li, W. Mann
• Published 2017
• Economics

We analyze the regulation of initial coin offerings (ICOs), in which a company raises funds by pre-selling access to a later product or service. We start by presenting a model that rationalizes the use of ICOs for launching peer-to-peer platforms: by adding dynamics to a platform launch, ICOs can 1) solve a coordination failure problem inherent in many projects with network effects (strategic complementarity in consumers’ participation); and 2) harness the “wisdom of the crowd” by aggregating dispersed signals about project quality. Through either mechanism, an ICO increases platform value, makes the launch of a valuable platform more likely, and enhances social welfare. However, the dynamics of ICOs are also subject to manipulation without strong enforcement on disclosures of off-chain compensation. We use our model to analyze under what circumstances ICOs should be banned or allowed, and highlight the importance of the disclosure requirement.