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Evaluating ICOs

Evaluating ICOs. Campbell R. Harvey Duke University and NBER. The Bandwagon Investors. The Bandwagon Investors.

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Evaluating ICOs

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  1. Evaluating ICOs Campbell R. Harvey Duke University and NBER

  2. Campbell R. Harvey 2019

  3. The Bandwagon Investors Campbell R. Harvey 2019

  4. The Bandwagon Investors • …the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.” https://ssrn.com/abstract=2078535 Campbell R. Harvey 2019

  5. The Bandwagon Investors • …the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.” Buffett not talking about bitcoin – he was talking about gold in 2012 Campbell R. Harvey 2019 https://ssrn.com/abstract=2078535

  6. The Bandwagon Investors Gold Campbell R. Harvey 2019

  7. The Bandwagon Investors Gold Campbell R. Harvey 2019

  8. The Bandwagon Investors BTC Campbell R. Harvey 2019

  9. The Bandwagon Investors BTC Campbell R. Harvey 2019

  10. The Bandwagon of Coins and Tokens Most investors and many in the business don’t know the difference between a coin and a token! • It is like the Wild West Campbell R. Harvey 2019

  11. Almost anything can be tokenized 1. First Gen/Gold 2.0: Bitcoin (BTC), Litecoin (LTC) 2. Distributed Computation Tokens: Ethereum (ETH),Tezos (XTZ), EOS, and DFinity 3. Utility Tokens: Programmable blockchain assets: Storj, Golem (GNT), Sia (SC), FileCoin Campbell R. Harvey 2019

  12. Almost anything can be tokenized 4. Security Tokens: Represent stocks, bonds, other assets, ASX initiative • STO=Security Token Offering; ETO=Equity Token Offering 5. Fungible Tokens:ERC-20, Decentraland (MANA), REP 6. Non-fungible Tokens: ERC-721, Dharma debt agreements, Decentraland (LAND), Cryptokitties Campbell R. Harvey 2019

  13. Almost anything can be tokenized 7. Stablecoins: • Fiat Colleralized: USDT, TUSD, LBXPeg, Candy, USDC, PAX, GUSD • National Cryptofiat: Fedcoin, Petro, Eurocoin, CADCoin,… • Natural Asset Collateralized: Digix Gold (DGX), Tiberius Coin (TCX), Swiss Real Coin (SRC), D1 Coin • Non-Collateralized: Basecoin Campbell R. Harvey 2019

  14. Storm of ICOs Campbell R. Harvey 2019 https://www2.deloitte.com/us/en/pages/consulting/articles/initial-coin-offering-a-new-paradigm.html

  15. Danger https://www.wsj.com/articles/buyer-beware-hundreds-of-bitcoin-wannabes-show-hallmarks-of-fraud-1526573115 Campbell R. Harvey 2019

  16. Danger • 121 projects did not name a single employee • 24 promised financial rewards without risk • Freelancers writing “white papers” for as little as $100 • Even if employee names are listed, they may be fake https://www.wsj.com/articles/buyer-beware-hundreds-of-bitcoin-wannabes-show-hallmarks-of-fraud-1526573115 Campbell R. Harvey 2019

  17. Danger Campbell R. Harvey 2019

  18. Danger • Idan Cohen does not exist • It is a picture of Eduardo Carillo https://www.wsj.com/articles/buyer-beware-hundreds-of-bitcoin-wannabes-show-hallmarks-of-fraud-1526573115 Campbell R. Harvey 2019

  19. Danger • Idan Cohen does not exist • It is a picture of Eduardo Carillo

  20. Danger https://web.archive.org/web/20180228123858/https://www.gizadevice.com/ Campbell R. Harvey 2019

  21. Danger https://web.archive.org/web/20180228123858/https://www.gizadevice.com/ Campbell R. Harvey 2019

  22. Danger https://web.archive.org/web/20180228123858/https://www.gizadevice.com/ Campbell R. Harvey 2019

  23. Danger https://www.linkedin.com/in/marcofike/ Campbell R. Harvey 2019

  24. Danger https://icobench.com/u/marco Campbell R. Harvey 2019

  25. Danger https://www.cnbc.com/2018/03/09/cryptocurrency-scammers-of-giza-make-off-with-2-million-after-ico.html Campbell R. Harvey 2019

  26. Danger https://www.cnbc.com/2018/03/09/cryptocurrency-scammers-of-giza-make-off-with-2-million-after-ico.html Campbell R. Harvey 2019

  27. Campbell R. Harvey 2019

  28. https://www.coinschedule.com/stats.html Campbell R. Harvey 2019

  29. ICO Future • ICOs are not going away – however, there is greater regulatory oversight now • SAFTs • Blockchain ventures have seen no slowdown in interest from venture capitalists • Expect to see in the near future the mix of funding tilt away from ICOs towards more traditional Seed and Series A funding. Campbell R. Harvey 2019

  30. ICO Future • No shortage of venture interest Campbell R. Harvey 2019 https://www.bloomberg.com/news/articles/2018-10-05/yale-is-said-to-invest-in-crypto-fund-that-raised-400-million

  31. ICO Future The a16z crypto fund Today we are announcing the launch of a16z crypto, a $300M venture fund that will invest in crypto companies and protocols. Our fund is designed to include the best features of traditional venture capital, updated to the modern crypto world: • We are long-term, patient investors. • We have an “all weather” fund. We provide operational support to entrepreneurs.  • We are flexible with respect to stage, asset type, and geography.  • We are focused on non-speculative use cases.  Campbell R. Harvey 2019

  32. A framework for assessing ICOs: 1.Idea • What problem is being solved? • Is the problem an economically important problem? • Does the market already exist or does it have to be created? • Is this problem related to a current layer of middle people? If yes, how thick is that layer and what is the probability of strong resistance from the current actors that will be disrupted? • What advantage does the product offer and is it enough of an advantage to be profitable? • Is the idea a social idea (which involves large scale adoption to work)? Campbell R. Harvey 2019

  33. A framework for assessing ICOs: 2. Technology • Is there a white paper? Did the team write the paper? • Is there a better technical solution? • Is blockchain technology necessary (or even efficient) to solve the problem? (alternatively, it might be solved with regular currency or regular database tools) • Is the solution feasible today – or does it rely on future events (e.g., a technological problem must be solved, like Level 2 or sharding, in order for the idea to be successful) Campbell R. Harvey 2019

  34. A framework for assessing ICOs: 3. Blockchain specifics • Is this a coin or a token? Is this choice appropriate? • Could it use ETH, BTC? (does it need it’s own coin?) • What type of blockchain underlies the ICO – public or private? • Is the type of blockchain appropriate to solve the problem? • If a token, what kind of token, e.g., ERC 20, ERC 721; is this a utility token? • If a coin, what is the monetary policy? What are the incentives to run nodes? What will the distribution look like (how much does management/owners keep)? • If a permissioned, what are the security protocols for the nodes? Campbell R. Harvey 2019

  35. A framework for assessing ICOs: 4. Team • What is the experience of the management team? Do they have a track record in launching a business? • Does management understand blockchain technology? • Does management have the technical expertise to design the blockchain technology? • Is the development team in place? • Is there key-person risk? • Are there advisors and who are they? • Are there any red flags arising from marketing materials that may be exaggerated or even deceptive? Are they hyping? Campbell R. Harvey 2019

  36. A framework for assessing ICOs: 5. Execution • Will there be an ICO or a private capital raise (and potentially an airdrop)? • Is there legal or regulatory risk associated with the ICO? Is the ICO a security? Can the ICO be launched in the US? • Does the business require a money transfer license? • Has there been a pre-sale? What was the motivation for the pre-sale? • Does the company have initial backing and from whom? Campbell R. Harvey 2019

  37. A framework for assessing ICOs: 6. Upside • Is the idea scalable? What is a realistic share of the market? • Is there positive convexity to apply a similar idea in related applications? Campbell R. Harvey 2019

  38. Blockchain applications 2018 Duke’s Innovation and Cryptoventures course: 231 students • Medical records/hospital transfers • Ticketing/Public transportation • Coffee supply chain/Manuka honey • Employment verification • New global entry system • Scientific data for research • Refugee ID • Art and luxury goods registry • Islamic finance • Vaccinations • Workplace harrassment • Solar power trading • STI certification Campbell R. Harvey 2019

  39. Blockchain applications 2017 Duke’s Innovation and Cryptoventures course: 75 students • Entertainment and sports ticketing • Government benefit programs • Humanitarian aid • Identity • Single password for all accounts • Educational and test score records • Agricultural supply chain in India • Aircraft leasing • Digital twins for large medical devices like CT and MRI • Smart guns Campbell R. Harvey 2019

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