Concerning Twitter and GitHub activity, we faced an issue with inactive or blocked accounts. Although the number was not enough to compromise the research, we point out the fact that, in some cases, we were not able to collect information on social platform activity, due to the current unavailability of the account. The same issue occurred with some projects’ whitepapers, which we could not find, even by searching several platforms dedicated to ICOs and on the project’s official website.

To keep the same sample used for the remaining models, we considered the value 0 for the projects that did not establish fundraising thresholds. ICOs abbreviated as Initial Coin Offering, has become a prime source of crowdfunding systems, in exchange for cryptocurrencies or tokens for funding project developments. The whitepaper contains the technical details of operations of cryptocurrency, and the developers work to design the currency to support the project. This process is done by smart contracts and platforms such as decentralized exchanges.

A Quick Guide On Initial Coin Offering Ico

Being an outside party connecting both investors and entrepreneurs, these institutions fulfill the role of collecting unbiased information and are the channels among market participants . The study of cybernetics highlights that the actions taken by a system can cause changes in the environment. This leads to the adaptation of the system, as changes in the environment are perceived as feedback (Skyttner 2005; Mele et al. 2010). The last important concept to address in this study concerns the idea suggested by the viable system approach. This approach states that there are relationships among sub-systems and supra-systems (Mele et al. 2010).

You need a source of information and fundamental analysis and risk management skills to start investing in the ICOs. Another important rule is to define and publish prerequisites such as White Paper. It is an introduction to the project, the developers, the project goals, and other information, some of which are very complete and professional and some of which are quite rudimentary. The general systems theory has best sto its roots in the 1940s, when the Austrian biologist Ludwig von Bertalanffy created a new approach applicable to all fields of science that sought to address the increasing complexity of the world’s problems. The main objective of this theory is to understand the individual and his environment as part of a broad interactive system, and the aim is to study the interactions from different holistic perspectives .

In a market characterized by adverse selection, there is no distinction between good-quality projects and poor-quality projects that are sold at the same price . Therefore, there is a need to ensure that buyers with less information are provided with quality signals that can identify a good quality product in a very unequal market . The word ICO stands for Initial Coin Offering and means the first offering of tokens for investors. For example, projects that intend to start their business, in a win-win deal, sell part of their tokens at a low price to raise the capital they need. The results were similar in the models using the total capital raised and soft-cap achievement as the dependent variables.

Literature Review

These measures can capture the success of the project in relative terms; in other words, in terms of its objectives. Hence, a project that predefines financing thresholds should be evaluated, taking them into account. However, these measures may not assess projects without financing thresholds. Interest in digital solutions has increased, particularly during times of isolation, such as the Covid-19 pandemic. This can be seen in the strong correlation between the price of gold in an economic downturn and the valorization of ESPO, an exchange traded fund that tracks the market for the gaming industry (López-Cabarcos et al. 2020).

We decided to remove all these variables because we could not be certain of the time when they were attributed. The ratings are usually attributed before the ICO starts and are updated throughout the campaign and again after it is concluded. Although we are confident of their correct usage in the model, we could not ensure that they were completely unbiased and we, therefore, decided to exclude them. In our preliminary analysis, we concluded that the ratings for the team, project, and product had a positive impact on project success, and the rating for the vision had a negative impact on the project.

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What Is Ico?

There are many avenues for future research in ICO projects because of the novelty of the topic and several unexplored features. After performing the current research, we found that some variables have a strong impact on project success, for instance, the whitepaper. For future studies, it would be interesting to isolate these variables and focus on their effects.

The risks involved in the process of investing in ICOs are very important, because novices, seeing the profitability of this process, try to bet or invest in the wrong projects and lose their capital. After performing a correlation and VIF analysis,Footnote 1 we confirmed that there were no collinearity issues. As previously discussed in the methodology section, we discarded four variables that showed high VIF values , which could compromise the analysis, particularly concerning the model regressed with the standard OLS method. These variables were clearly correlated among them, namely, the ratings attributed to different aspects of the project, Twitter profile followers, and following of the project. After reducing the number of variables, we obtained VIF values with a mean of 1.90.

Enquire from people who understand the technology, to get detailed information. Marketing and its response provide a brief idea of the number of tokens to be made available for selling. It also provides an estimate for the amount to be raised for their project.

Initial Coin Offering Ico

For example, for tokens of a Storjcoin X project, you can buy a certain amount of disk space in Storj or increase throughput. You can also earn tokens by leasing a certain space on your hard drive. ICOs are events where investors pay directly to the company and trust them to deliver on their promises. But IEOs are offered by Exchanges, which scrutinize the Startups before they launch IEO. Although IEOs are most preferred nowadays, your investments are to be made after Due diligence.

• Also, in the second step, you must be completely proficient in the basics of investment risk management so that if you see a suitable investment position, do not make decisions based on emotions to take a high-risk investment.
• Some investors have flooded into ICOs in hopes of participating in the financial gains of similar size to those enjoyed by early Bitcoin or Ethereum speculators.
• The promoters of the projects hold crucial information on their own capabilities and each project’s characteristics, which investors do not .
• The datasets used and/or analyzed in the current study are available from the corresponding author on reasonable request.
• The initial coin offering is a completely new phenomenon in the world of finance and technology.

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Similarly, ICOs can benefit from their digital characteristics and gain the interest of the public. Indeed, interest in ICO projects has increased, as revealed by internet search trends and the size of the ICO market following that trend . From 2016 to 2019, 1676 token sales were successfully concluded, https://globalcloudteam.com/ amounting to a total of approximately USD 29.2 billion . The highest-financed project obtained USD 4.1 billion—a 2017 project named EOS, which is software based on blockchain technology . The countries with the highest number of ICOs and the greatest amount of capital are the USA and Singapore.

Building on signaling theory, this is an information asymmetry problem . Signaling theory states that several markets are characterized by an information gap between buyers and sellers, notably financial markets, in which investors do not have the same level of information as entrepreneurs. We confirmed the dependency of ICO projects on the cryptocurrency market. The prices of cryptocurrencies are also linked to a project’s success, as confirmed in our research and in the literature .

After initial fundraising, ICO organizers distribute tokens to investors, who can either store them on their crypto wallets and receive a part of the company’s profits, or transfer them to cryptocurrency exchanges and sell them. Both are Fundraising events.ICO or Initial coin offering is an event monitored by the company selling its stake to investors, and raises capital to support new coin or service developments. Whereas, IEO is an event where Cryptocurrency exchanges raise capital on behalf of the startups.

We have summarized this information and considered it to comprise a project’s success factors. The literature highlights several success factors related to the project itself, the financing campaign, the use of social media, and the characteristics of human capital. There is still no consensus regarding a single success measure for ICO projects, since different studies follow different measures, each with a purpose and good reasoning to identify the success of a venture. In fact, some studies have aggregated several measures with similar results (de Jong et al. 2018).

What Are The Goals Of An Ico?

Initially, a blockchain project is proposed, wherein the funds get raised through Initial Coin Offering. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

In short, the theory sees each activity, object, or individual as not behaving alone, but as being part of a larger system with which they interact. Indeed, ICO projects use the power of a wide reach to obtain contributions from a vast crowd of investors. As in crowdsourcing, ICO projects can reduce or eliminate the involvement of third parties because of the blockchain’s trust-free and transparent nature, which allows completely secure transactions (Frizzo-Barker et al. 2019). The use of the crowd and its direct link to entrepreneurs or companies can provide several benefits, namely, reduction of costs, greater brand visibility, and access to specialized skills .

Regardless of the model used, we confirmed that the whitepaper has become a crucial part of ICO projects, in order to reduce information asymmetry. We conclude that the length of the whitepaper can positively help inform investors about the project, as confirmed in Model 3. Investors tend to pay closer attention to the content of the whitepaper (Adhami et al. 2018), such as the disclosure of team members and technical details (Feng et al. 2019; Fisch 2019). These two variables have positive coefficients, and the variable measuring the technicality of the whitepaper is approved in all models.

Success Factors

Having a secondary market and a tradable token is a predominant characteristic of ICO projects and the main distinguishing point from crowdfunding . Having a secondary market, that is, being listed on at least one crypto exchange, is crucial to a project’s success. As the tradability of the token in the secondary market is of tremendous importance (Ackermann et al. 2020), there is also a positive effect from being listed in more than one crypto exchange (Lyandres et al. 2019). Some researchers consider the secondary market to be as important as the capital raised and it is itself, therefore, considered to be a measure of success because the project is appraised as successful only once it is tradable . It is important to highlight that token value is highly volatile and can be seriously jeopardized by adverse industry events, such as technical hacks or regulatory actions .

ICO or Initial Coin Offering is a release by any project of coupons, or tokens intended to pay for services of a platform in the form of cryptocurrency. ICO cryptocurrency is one of the methods of attracting investment for the development of a project. ICO has developed in parallel with the popularity of the Ethereum platform. If you think you can make it big on a new ICO, make sure you do your research in advance. Having a strict framework will always help in separating good projects from bad ones and potential scams. When it comes to a regular investor, it is necessary to weigh the benefits, risks, and potential legal upswings of the ICO landscape before investing.

The second most represented location is the Asia–Pacific region with 106 projects, followed by North America with 44 projects. Most of the projects have low or average ratings attributed by external parties, and very few projects obtain exceptional classifications . Most of the entrepreneurs have participated in up to three projects , and only a few promoters have participated in more than three projects .

How Does An Initial Coin Offering Or Ico Work?

The findings of our study contribute to the literature on ICO projects. We were able to assemble a database and test most of the variables concerning the success factors of ICOs mentioned in the literature. We confirmed several aspects present in the literature, but also obtained different results, thereby contributing to a wider discussion. Our research reported here, based on a considerably large database of blockchain projects and the use of theory, makes our contribution unique in the literature. Social networks are strong contributors to innovation through the promotion of collaborative work (Al-Omoush et al. 2020). Great weight has been given to the presence and use of social networks, as they influence the output of ICO projects.

Due to the lack of regulation and enforcement of securities law, ICOs have been the vehicle for scams and fraud. Fewer than half of all ICOs survive four months after the offering, while almost half of ICOs sold in 2017 failed by February 2018. Despite their record of failure and the falling prices of cryptocurrencies, a record $7 billion was raised via ICO from January–June 2018. Yandex Browser is a Chromium-based browser from the biggest Russian search engine.