--- title: "Initial Coin Offerings and the Value of Crypto Tokens" authors: ["Christian Catalini", "Joshua Gans"] venue: "Working paper" year: 2018 area: stablecoins-libra featured: false links: ssrn: "https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3137213" abstract: "Models how initial coin offerings let entrepreneurs fund platform start-up costs by pre-selling the token that will clear future transactions: buyer competition reveals consumer demand without knowing willingness to pay in advance. The catch is monetary credibility — discretionary token supply undermines saving and future capital raising." --- This paper explores how entrepreneurs can use initial coin offerings — whereby they issue crypto tokens and commit to accept only those tokens as payment for future use of a digital platform — to fund venture start-up costs. We show that the ICO mechanism allows entrepreneurs to generate buyer competition for the token, which, in turn, reveals consumer value without the entrepreneurs having to know, ex ante, consumer willingness to pay. We find that venture returns are independent of any committed growth in the supply of tokens over time, but that initial funds raised are maximized by setting that growth to zero to encourage saving by early participants. Furthermore, by revealing key aspects of consumer demand, crypto tokens may increase entrepreneurial returns beyond what can be achieved through traditional equity financing. A lack of commitment in monetary policy can, however, undermine saving and, thus, the cost of using tokens to fund start-up costs is potential inflexibility in future capital raising. Crypto tokens can also facilitate coordination among stakeholders within digital ecosystems when network effects are present. [Download the paper](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3137213)