Initial Coin Offerings and the Value of Crypto Tokens by Christian Catalini, Joshua S. Gans :: SSRN

Massachusetts Institute of Technology (MIT) - Sloan School of Management; Diem Association; National Bureau of Economic Research (NBER)

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER


This paper explores how entrepreneurs can use initial coin offerings - whereby they issue crypto tokens and commit to only accept those tokens as payment for their products - to fund venture start-up costs. We show that the ICO mechanism allows entrepreneurs to generate buyer competition for the token, giving it value. We also 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. Nonetheless, since the value of the tokens depends on a single period of demand, the ability to raise funds is more limited than in traditional equity finance. Furthermore, a lack of commitment in monetary policy undermines saving behavior, hence the cost of using tokens to fund start-up costs is inflexibility in future capital raises. Crypto tokens can also facilitate coordination among stakeholders within digital ecosystems when network effects are present.

Catalini, Christian and Gans, Joshua S., Initial Coin Offerings and the Value of Crypto Tokens (March 5, 2019). MIT Sloan Research Paper No. 5347-18, Rotman School of Management Working Paper No. 3137213, Available at SSRN: or