ICO vs. IPO: Empirical Findings, Information Asymmetry, and the Appropriate Regulatory Framework

Initial coin offerings (ICOs) are a new form of fundraising whereby blockchain-related ventures raise public capital in exchange for newly issued digital tokens. In recent years, ICOs have been a prominent focus of legal and economic studies, which analyze their characteristics and determinants of their success. In this Article, we systematically review these studies and identify key ICO success factors. We then offer theoretical explanations for our findings, and in certain cases, connect the empirical results with the IPO and crowdfunding literatures. The results of our analysis are important for two reasons. First, there is no single formal data source, and there is evidence of inconsistencies across the different data sources available. Second, our results show in what circumstances ICO investors and initiators behave like IPO investors and initiators, and hence contribute to the literature on tokens as securities. In the second part of this Article, based on our analysis, we show that a high degree of information asymmetry exists in ICOs, identify three sources of informational asymmetries, and discuss the role of signaling theory and rating websites in mitigating these asymmetries. Finally, we discuss the regulatory implications of our findings, and propose specific disclosure requirements tailored to ICOs