TO INFINITY AND BEYOND: FINANCING PLATFORMS WITH UNCAPPED CRYPTO TOKENS 

To Infinity and Beyond: Financing Platforms with Uncapped Crypto Tokens provides an elegant model and analysis on the design of Initial Coin Offerings (ICOs). ICOs are an emerging form of crowdfunding for blockchain-based startups. It consists of entrepreneurs creating and selling digital tokens to retail investors in exchange for crypto or fiat currencies to finance blockchain-based projects. Successful ICOs include Ethereum, EOS and Filecoin. This fundraising method is more flexible than traditional financing methods such as venture capital financing and IPOs due to its decentralized nature, as it occurs without the need for financial intermediaries. Many service-based platforms such as Ethereum use an “uncapped” ICO design, which foregoes limitations on token supply, providing more flexibility to firms in customizing their fundraising projects. However, this flexibility proves to be a double-edged sword, as ICOs’ lack of regulation can subject investors to dilution risk.

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This paper challenges the unpopularity of uncapped ICOs by suggesting operational details that service platforms like Ethereum can implement to improve accessibility and avoid potential moral hazard. The authors examine the conditions under which ICOs are optimal. In particular, they analyze the issuance of utility tokens versus dual tokens (stable coins and security tokens). They find that uncapped ICOs raise more funds than capped ICOs in the context of service platforms. To increase the success rate of uncapped ICOs, platforms should consider using two levers: charging the right amount of commission and implementing token policies that penalize firm misconduct. Choosing the correct commission policies can have a powerful effect on profitability compared to implementing both levers. Further, ICO accessibility can be improved by employing a dual token model, at the cost of reduced profits. The findings show that firms can leverage certain aspects of ICO design to successfully fund service platforms in the long run.