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Risks and challenges of initial coin offerings
Journal of Digital Banking,
3
(1),
81-96
(2018)
Abstract
Initial coin offerings (ICOs) enable start-ups to raise investment funds. They are challenging the way companies are financed. To date, hundreds of ICOs have collectively raised around US$4bn. Other several hundred ICOs are currently running, suggesting that this phenomenon will persist in the future. ICOs have received a lot of criticism and are under scrutiny from regulators, such as the Monetary Authority of Singapore (MAS) and the US Securities and Exchange Commission (SEC). This paper considers the technical, financial and regulatory risk of ICOs. The paper shows that ICOs can generate higher returns than traditional financial instruments, yet since 2013 a quarter of the projects have gone bankrupt or suffered significant cost overruns.
Keywords: blockchain; distributed ledger technologies; cryptocurrencies; Bitcoin; tokens; initial coin offering; ICO; Ethereum; token trading; risk management; smart contracts
The full article is available to subscribers to the journal.
Author's Biography
Hui Gong Dr Hui (Hugo) Gong is a lecturer in FinTech at the Westminster Business School. His research interests include algorithmic trading and high-frequency trading, Blockchain, cryptocurrencies and artificial intelligence. Before joining the University of Westminster, Dr Gong received his doctorate in financial mathematics at University College London and worked on quantitative investment and FinTech-related projects for investment banks and hedge funds in London. He was also a special adviser to APPG Blockchain, a researcher at UCL Centre for Blockchain Technologies (UCL CBT), specialised in cryptocurrencies and associated risks of cryptocurrency trading. Dr Gong is also the founder of China-UK Blockchain Association, which is a bridge that connects Chinese Fintech entrepreneurs, investors, and experts with the UK Fintech community.
