In a typical initial coin offering (ICO), an entrepreneur pre-sells digital tokens which will later serve as the medium of exchange on a peer-to-peer platform. We present a model rationalizing ICOs for launching such platforms: By transparently distributing tokens before the platform operation begins, an ICO overcomes later coordination failures during platform operation, induced by a cross-side network effect between transaction counterparties. Furthermore, a critical-mass requirement that arises from an endogenous same-side network effect during the ICO rationalizes several empirical patterns observed in ICO structures. Our model provides guidance for both regulators and practitioners to discern economically valuable ICOs.
Ref. REF presents a model that rationalize the use of an ICO for the launch of a peer-to-peer platform that still needs to be built.
Initial Coin Offering and Platform Building
SSRN Electronic Journal
SSRN Electronic Journal
Computer Science