Decrypting Coin Winners: Disclosure Quality, Governance Mechanism and Team Networks

Using a proprietary dataset of initial coin offerings (ICOs) and cryptocurrencies, we systematically examine whether disclosure quality, governance mechanisms, and team quality can differentiate legitimate ICO projects from fraudulent ones. The three fundamental factors positively affect ICO deal completion, ICO listing status, and the amount of raised capitals. In addition, we directly track entrepreneurs’ effort after fundraising activities using the post-ICO technological development. We find that while the three factors have the same positive effects, the team with strong influence, one sub-indicator of team quality, positively predicts ICO success but negatively correlates with the progress of development. These results suggest that ICO events are plausibly prone to coalitions of powerful players whose main objective is likely to be cashing out after ICO without pushing for the development of its purported project. Finally, we construct a token valuation measure and show that technological development and user base are two significant drivers of the token value.