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AreTokensSecuritiesAnAnatomyofInitialCoinOeringsEvgenyLyandres–BostonUniversityDinoPalazzo–FederalReserveBoardDanielRabetti–TelAvivUniversityMay2019Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay20191/32ICOs:OverviewLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay20192/32ViewsoncryptocurrenciesandICOsWarrenBuetinMay,2018:Bitcoinisprobablyratpoisonsquared.
CharlieMunger(WarrenBuet'sdeputy)inMay,2018:Supposeyoucouldmakealotofmoneytradingfreshlyharvestedbabybrains.
Wouldyoudoit.
.
.
bitcoinisalmostasbad.
BillGatesinMay,2018:Asanassetclass,you'renotproducinganythingandsoyoushouldn'texpectittogoup.
BitcoinandICOs,Ibelievecompletely[they'resome]ofthecrazier,speculativethings.
Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay20193/32WhatisanICOAnInitialCoinOering(ICO)–alsoknownastoken(orcoin)sale–isanewformofventurenancing,wherebyanentrepreneurIssuesacertain(pre-determined)numberoftokensCommitstoacceptthesetokensasthesolemeansofpaymentSellssomeofthesetokensto"investors"Atokengivestheownercryptographicallysecuredrights:Righttousesoftware/network/platformortoredeemthetokenforcurrency/good("utilitytokens")Righttoafutureshareofearnings("securitiestokens")However,usuallynovotingrightsDierencesfromreward-basedcrowdfundingNoprice,quantity,orproduct/servicecommitmentTokensaretradedinsecondarymarketsInvestors=usersLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay20194/32ICOmarketOver5,500ICOs,mostlysince2017VolumeofICOs:<100millionin2016$4billionin2017$26billionin20185timesmorenancingofblockchainstartupsthroughICOsthanthroughVCinvestmentsinthelasttwoyearsLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay20195/32ICOsovertimeLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay20196/32AdvantagesanddisadvantagesofICOsBenetsSpeedLowtransactioncostsLow/absentregulatoryrequirements(sometimes)GlobalinvestoroutreachAbilityofcombiningnancingwithbuildingacustomerbaseCostsLargeinformationasymmetryVulnerabilityofpropertyrightsInadvertentparticipationinillegalactivitiesLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay20197/32ICO(andrelated)literatureCrowdfunding.
.
.
Economiceectsofblockchaintechnology.
.
.
TheoreticalliteratureonICOsSockinandXiong(2018),LiandMann(2018),Cong,LiandWang(2018),CataliniandGans(2018),ChodandLyandres(2018),MalinovaandPark(2018)OptimalregulationofICOsChohan(2017),Robinson(2017),Kaal(2018),Zetscheetal.
(2018).
.
.
EmpiricalliteratureondeterminantsandconsequencesofICOsAdhami,GiudiciandMartinazzi(2018),AmsdenandSchweizer(2018),BenedettiandKostovetsky(2018),Borveau,DeGeorge,EllahieandMacciocchi(2018),Davydiuk,GuptaandRosen(2018),deJong,Roosenboom,andvanderKolk(2018),Fisch(2018),FlorysiakandSchandlbauer(2018),Howell,Neissner,andYermack(2018),Hu,ParlourandRajan(2018),Huang,Meoli,andVismara(2018),Lee,LiandShin(2018),Momtaz(2018)Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay20198/32ICOregulationLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay20199/32ICOregulationRegulationofICOsisdicultCurrentlyrangesfromacompleteban(China,SouthKorea)torelativelylaxtreatmentandoccasionalcase-by-caseexamination(Switzerland,Singapore)Inmanycountries,USinparticular,regulatorsaremovingtoviewICOsassecurities:JayClayton(SECChairman)inDecember2017:ThestructuresofinitialcoinoeringsthatIhaveseenpromotedinvolvetheoerandsaleofsecuritiesanddirectlyimplicatethesecuritiesregistrationrequirementsandotherinvestorprotectionprovisionsofourfederalsecuritieslaws.
RobertCohen(SECcyberunitchief)inFebruary2019:Companiesmustcomplywiththesecuritieslawswhenissuingdigitaltokensthataresecurities.
Ontheotherhand,mosttokensaredescribedas"utilitytokens"asopposedto"securitytokens",i.
e.
maynotbeclassiedassecuritiesaccordingtotheHoweytestOurresearchquestion:AretokenssecuritiesLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201910/32AretokenssecuritiesAphilosophicalquestion.
.
.
Apolicy-relevantquestion:Dotokensresemble(i.
e.
behavelike)securitiesOr:DocharacteristicsofICOsandpost-ICOperformancesuggestthatICOinvestorsbehavesimilarlytoinvestorsinnancialinstrumentsthatweconsidersecuritiesWedrawparallelsbetweenICOsandIPOsofequityMostempiricalregularitiesaroundICOsareconsistentwithwhatweknowaboutIPOs,boththeoreticallyandempiricallySomeofthediscrepanciesbetweenICOsandIPOsmaybetracedtodierencesininstitutionalsettingsThisevidencesupportstheviewthatICOsshouldbetreatedasissuanceofsecuritiesLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201911/32DataanditsqualityLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201912/32DataICOdata:10ICOaggregatorswww.
etherscan.
io,www.
coindesk.
com,www.
coingecko.
com,www.
cryptocompare.
com,www.
icobench.
com,www.
icodrops.
com,www.
icorating.
com,www.
icomarks.
io,www.
icodata.
io,andwww.
foundico.
comMatchingamongthemisabigissueAuxiliaryvariables:WhitepapersandprojectwebsitesPricesandtradingvolume:www.
coinmarketcap.
comSocialmediadata:Twitter,Reddit,Medium,BitcoinTalkCoderevisiondata:GithubBlockchaintransactiondata:www.
ethplorer.
io,www.
etherscan.
ioLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201913/32ICOdatacoverageNumberofMatches12345678910NumberofProjects1,642989827704498353289131575PercentofProjects30%18%15%13%9%6%5%2%1%0%Overall,over4,400ICOswith(some)informationoncrucialvariablesThisisthemostcomprehensiveICOdatasettodateLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201914/32ICOdataqualitySourceAmountraisedHardcapTokensupplyTokensforsaleObsMeandeviationObsMeandeviationObsMeandeviationObsMeandeviationwww.
etherscan.
io2420.
0680NA8110.
1280NAwww.
coindesk.
com8130.
0850NA0NA0NAwww.
coingecko.
com1,0330.
0791,4400.
1031,3320.
0879480.
141www.
cryptocompare.
com5250.
1325620.
1296270.
1476050.
181www.
icobench.
com1,3400.
0931,6230.
0891,7040.
0632,1120.
088www.
icodrops.
com4470.
0744150.
0833930.
1123650.
126www.
icorating.
com1,0120.
1151,4380.
1060NA1,8000.
147www.
icomarks.
io0NA8110.
0601,6090.
0531,8970.
081www.
icodata.
io18030.
32218030.
3143730.
3130NAwww.
foundico.
com0NA6760.
1300NA1,6000.
162Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201915/32ICOdataquality:BancorexampleSourceAmountraisedHardcapTokensupplyTokensforSalewww.
etherscan.
io77,566,371www.
coindesk.
com153,000,000www.
coingecko.
com75,783,855www.
cryptocompare.
com153,000,00036,000,00079,320,00039,660,000www.
icobench.
com153,000,000www.
icodrops.
com153,000,000www.
icorating.
com153,000,000www.
icomarks.
iowww.
icodata.
io153,000,000056,889,807www.
foundico.
comAverage153,000,00036,000,00072,390,00839,660,000Consistency1.
0000.
3330.
9441.
000Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201916/32ICOdataquality:BancorexampleSourceAmountraisedHardcapTokensupplyTokensforsalewww.
etherscan.
io0.
414www.
coindesk.
com0.
800www.
coingecko.
com0.
609www.
cryptocompare.
com0.
5150.
4650.
3610.
448www.
icobench.
com0.
731www.
icodrops.
com0.
919www.
icorating.
com0.
591www.
icomarks.
iowww.
icodata.
io0.
2110.
1910.
169www.
foundico.
comSum3.
7680.
6561.
5530.
448Adjustedquality3.
7680.
2191.
4660.
448ICOdataquality1.
475Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201917/32ICOdataqualityWeconrmallourempiricaltestsonasubsampleofICOswithhighestdataqualityLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201918/32SummarystatisticsLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201919/32Summarystatistics:ICOcharacteristicsandoutcomesMeanStd.
Dev.
MinMedianMaxObs.
ICOcharacteristicshardcap69.
75989.
410.
0020.
0048,093.
763,207%forsale0.
560.
240.
000.
571.
002,815presale0.
040.
200.
000.
001.
004,411whitelist0.
300.
460.
000.
001.
004,411kyc0.
490.
500.
000.
001.
004,411teamsize10.
678.
141.
009.
0074.
003,230whitepaper0.
260.
440.
000.
001.
004,411#nlpwords1,673752931,5625,0621,136techratio0.
290.
060.
040.
280.
651,136ICOOutcomesraiseddummy0.
450.
500.
000.
001.
004,411amountraised14.
70103.
960.
004.
574,197.
962,040raised-to-hardcap0.
440.
390.
000.
301.
001,711ICOlength47.
4239.
670.
0031.
00575.
004,411listing0.
390.
490.
000.
001.
002,040#exchanges5.
398.
311.
003.
00100.
00764Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201920/32Summarystatistics:ICOindustryandlocationMeanStd.
Dev.
MinMedianMaxObs.
Industryindustry0.
520.
500.
001.
001.
004,411nance0.
310.
460.
000.
001.
002,310businessservices0.
220.
410.
000.
001.
002,310entertainment0.
220.
420.
000.
001.
002,310othersoftware0.
150.
360.
000.
001.
002,310blockchain0.
090.
290.
000.
001.
002,310Locationlocation0.
790.
410.
001.
001.
004,411West.
Europe,Can.
,Austr.
0.
310.
460.
000.
001.
003,469EasternEurope0.
200.
400.
000.
001.
003,469Asia0.
190.
390.
000.
001.
003,469USA0.
150.
360.
000.
001.
003,469restoftheworld0.
150.
350.
000.
001.
003,469cryptofriendly0.
310.
460.
000.
001.
003,469Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201921/32Summarystatistics:TokenholdingsMeanStd.
Dev.
MinMedianMaxObs.
TotalWallets(log)atICOstart(log)4.
632.
290.
694.
7810.
35348atICOend(log)5.
512.
380.
695.
9311.
34450atrsttrade(log)6.
731.
671.
616.
8011.
8363730daysafterrsttrade(log)7.
281.
461.
107.
3311.
9963690daysafterrsttrade(log)7.
661.
401.
107.
7111.
99590180daysafterrsttrade(log)7.
931.
283.
538.
0111.
39463365daysafterrsttrade(log)7.
881.
333.
917.
9311.
39215WalletConcentrationatICOstart(log)0.
480.
360.
000.
441.
00348atICOend(log)0.
440.
350.
000.
361.
00450atrsttrade(log)0.
330.
270.
000.
261.
0063730daysafterrsttrade(log)0.
290.
250.
000.
221.
0063690daysafterrsttrade(log)0.
260.
230.
000.
201.
00590180daysafterrsttrade(log)0.
250.
230.
000.
191.
00463365daysafterrsttrade(log)0.
240.
220.
010.
170.
87215Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201922/32Summarystatistics:ICOandpost-ICOreturnsMeanStd.
Dev.
MinMedianMaxObs.
End-to-openICOreturnsICOreturn(%)269.
18405.
914.
23108.
981,625.
06801First-dayICOreturnsFirstdayreturn(%)11.
8525.
86-20.
862.
4586.
15878Longer-termcumulativepost-ICOreturns30-dayreturn(%)0.
7589.
73-81.
48-30.
51258.
3883590-dayreturn(%)9.
09140.
55-93.
43-46.
38448.
70771180-dayreturn(%)32.
04230.
04-97.
55-68.
90796.
31615365-dayreturn(%)60.
30295.
98-98.
78-66.
121,095.
33302Returnvolatility30-dayaveragevol(%)18.
9411.
376.
5615.
5350.
7285790-dayaveragevol(%)17.
4810.
087.
6114.
2546.
72790180-dayaveragevol(%)16.
288.
697.
8013.
3241.
71623365-dayaveragevol(%)17.
219.
369.
0613.
6945.
90305Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201923/32EmpiricalresultsLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201924/32DeterminantsofICOsuccess:1)raisingaminimalamount2)logamountraised3)raised-to-hardcap4)exchangelisting5)avoidingpost-listingdisasterICOsuccess↑inprojectteamsize,whitepaperavailabilityandinformativeness,socialmediapresenceandcoverage,sourcecoderepositorypresenceandnumberofcoderevisions√IPOIPOsuccess↑intheamountofinformation(Theory:BenvenisteandSpindt(1989),Welch(1992);Empirics:Dunbar(1998),Busaba,BenvenisteandGuo(2001),DunbarandFoerster(2008))ICOsuccess↑inpresale√IPOIPOsuccess↑inthenumberofinstitutional/sophisticatedinvestorsLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201925/32DeterminantsofICOsuccess:1)raisingaminimalamount2)logamountraised3)raised-to-hardcap4)exchangelisting5)avoidingpost-listingdisasterICOsuccess↓inproportionoftokensforsale√VCEntrepreneurialventure'ssuccess↑inthe"skininthegame(Conti,ThursbyandRothaermel(2013))ICOsuccess↑inkyc√IPOBookbuildingisconduciveofIPOsuccessRaised-to-hardcap↓inhardcap√IPOLargeoeringsmaysendanegativesignaltothemarket(Theory:LelandandPyle(1977),MillerandRock(1985),Empirics:(Hanley(1993),Dunbar(1998),DunbarandFoerster(2008))Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201926/32EvolutionofcodeproductionaroundICOs√IPODeclineinproductivity/operatingperformancefollowingIPOs(JainandKini(1994),Chemmanur,HeandNandy(2008))Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201927/32EvolutionofsocialmediaactivityaroundICOsLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201928/32DeterminantsofICOreturnsEnd-to-openICOreturn↓inICOsize(amountraised)√IPOIPOunderpricing↓IPOissuesize(BeattyandRitter(1986),MegginsonandWeiss(1991),MichaelyandShaw(1994))End-to-openICOreturn↑insocialmediaactivityatICOstart√IPOIPOunderpricing↑intheextentofinformationasymmetryFirst-dayreturn↓inend-to-openreturnXIPOIPOrst-dayreturn↑inoerpricerevision(Hanley(1993),BradleyandJordan(2002))Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201929/32Determinantsofpost-ICOlonger-termreturnsandvolatilityLonger-termreturns↓inICOreturns√IPOLong-termpost-IPOreturns↓inIPOunderpricing(Theory:Ljungqvist,NandaandSingh(2006),Empirics:Ritter(1984),Ritter(1991),OfekandRichardson(2003))Longer-termreturns↓inICOsizeXIPOIPOlong-termreturns↑inIPOproceeds(BravandGompers(1997),Carter,DarkandSingth(1998))Possiblereasonforthedierence:InIPOs,morereputablebanksunderwritelargeroerings(ChemmanurandFulghieri(1994)),whileinICOsraisingalargeamountmaybeasignofovervaluationPost-ICOreturnvolatility↓inend-to-openICOreturnXIPOIPOlong-termreturns↑inIPOunderpricing(BeattyandRitter(1986))Lyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201930/32ConclusionsLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201931/32Conclusions1ICOdataqualityisterribleImposingdisciplineonthedeterminationofwhichdataaremostreliableiscrucialWeproposedataqualitymeasuresbothatthedatasource/variablelevelandattheICOlevelWeverifyallresultsusingonlyICOswithhighest-qualitydata2DeterminantsofICOsuccess,ICOreturns,andpost-ICOlonger-termreturnsare,forthemostpart,reminiscentofthoseofIPOsThissuggeststhatinvestorsincryptotokensaredrivenbysimilarconsiderationsandbehavesimilarlytoinvestorsinequityThisprovidesajusticationfortreatingtokensassecuritiesLyandres,Palazzo,Rabetti(2019)AnatomyofICOsMay201932/32