George Zuo | University of Maryland
Initial coin offerings (ICOs) are a new method of raising capital for early stage ventures and jumping-start the network effect. In an ICO, a blockchain-based issuer sells cryptographically secured digital assets, usually called tokens. A token’s value is tied to work that grows the network through open-source software development, and tokens are often used to compensate developers. We study the post-ICO Github-based technological development of token developers and examines what financial and operating characteristics of tokens affect tangible developmental outcomes that would facilitate an ICO issuer’s progress toward entrepreneurial goals. Quasi-experimental analyses find that success is associated with a token’s quality signals and liquidity on exchange listing, both driving higher open-source development. The mechanism centers on the incentive alignment that solves coordination problems in entrepreneurial growth: the developers’ token ownership.