An Optimal ICO Mechanism

Cerezo Sánchez, David (2017): An Optimal ICO Mechanism.

Abstract

Initial Coin Offerings (ICOs) are raising billions in funding using multiple strategies, none justified from the point of view of mechanism design, resulting in severe underpricing and high volatility. In the present paper, an optimal ICO mechanism is proposed for the first time: a truthful multi-unit Vickrey-Dutch auction of callable tokens (i.e., a new hybrid security of tokens packaged with callable warrants). Truthful bidding is an ex-post Nash equilibrium strategy and the auction terminates with an ex-post efficient allocation; additionally, the callability of the warrants eliminates the winner’s curse of the auction and its underpricing. An implementation demonstrates its practical viability.

• Item Type: MPRA Paper
• Language: English
• Keywords: Optimal ICO, mechanism design, multi-unit auction, callable warrant, cryptoeconomics
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L26 - Entrepreneurship; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

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