ICOs, IEOs and STOs: Token Sales as Innovative Formulas for Financing Start-Ups

Choice between IEO and ICO: Speed vs. Liquidity vs. Risk

“…This section provides a review of growing literature on ICO and IEO with regard to their aspects related to the present paper. For general reviews see, for example, Cumming, Johan and Pant (2019) [37], Myalo (2019) [4], Bellavitis, Fisch and Wiklund (2021) [38], Romero-Castro, Pérez-Pico and Ulrich (2021) [28] and Miglo (2022) [35].…”

“…Some papers argue that although under crowdfunding the investors/funders objective is to obtain some rewards/benefits/services from the firm, under ICO different objectives may take place including investments in tokens just as financial assets/speculations etc. It can explain why different types of investors exist under ICO (Fahlenbrach and Frattaroli (2019) [61], Liu (2019) [62], Fisch and Momtaz (2020) [63], Kaal and Dell'Erba (2017) [57], Howell et al (2019) [64], Romero-Castro et al (2022) [28] and Tran Bui (2022) [29]). Further some research finds that the presence of different types of investors e.g., speculators can play a positive role.…”

“…For empirical research on ICO see, for example, Adhami, Giudici and Martinazzi (2018) [19], Amsden and Schweizer (2018) [20], Ante, Sandner and Fiedler (2018) [21], Kher, Terjesen, and Liu (2020) [22], Momtaz (2020) [23], Masiak, Block, Masiak, Neuenkirch, and Pielen (2020) [24], Boreiko and Risteski (2020) [25] and Huang, Meoli, and Vismara (2020)) [26]. Research on IEOs is in its early stages and as we are writing this article it includes several empirical and review papers (e.g., Myalo (2019) [4], Anson (2021) [27], Romero-Castro, Pérez-Pico and Ulrich (2022) [28] and Tran Bui (2022) [29], but no theoretical paper to the best of our knowledge as yet exists. Respectively no paper is focused on the choice between ICO and IEO although this issue has been widely discussed among practitioners.…”

“…The reason is that in either case the number of type 1 investors and respectively the level of demand of firm products/services is crucial (no role exists for a speculation in a perfect market) unless other factors/market imperfections are considered. We then consider our main case when, under IEO, there is promotional effect of listing (Myalo (2019) [14], Romero-Castro et al (2022) [28]). Moreover, under ICO the entrepreneur is subject to moral hazard problems, i.e., he can be involved in diverting funds/investing in an inefficient project/"stealing" funds from investors (Chod and Lyandres (2021) [14], Gan et al (2021) [18]).…”