New Blockchain Intermediaries: Do ICO Rating Websites Do Their Job Well?

Abstract

The fintech revolution, crowdfunding, and blockchain-based funding have dramatically reduced borrowing and lending transaction costs. Many have argued that ultimately this would lead to the complete disintermediation of financing for start-ups and SMEs. However, persistent asymmetric information and moral hazard problems have led to the creation of a new class of intermediaries that play a vital role in these new innovative financing methods. The authors review the new ecosystem built around initial coin offerings (ICOs), and in particular study the role of the ICO aggregators, and listing and rating portals. Using their hand-constructed database of all ICOs from inception in 2013 to September 2017, the authors find robust statistical confirmation that extensive coverage of a particular fundraising campaign in the ICO aggregators’ lists is associated with more successful token sales. However, ratings data seem and appear to vary considerably across different ratings websites and appears to be of mediocre quality. Investors should therefore treat such ratings with caution.