the blockchain identity - fuqua school of businesscharvey/teaching/... · the bandwagon investors....

Evaluating ICOsCampbell R. Harvey

Duke University and NBER

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Campbell R. Harvey 2019 2

The Bandwagon InvestorsDaily BTC=BTSP 6/12/2016 - 7/19/2018 (GMT)BarOHLC, BTC=BTSP, Trade Price6/11/2018, 6,781.17, 6,835.22, 6,634.86, 6,730.89, -50.28, (-0.74%)

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J A S O N D J F M A M J J A S O N D J F M A M J JQ3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18Campbell R. Harvey 2019 3

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.”

Campbell R. Harvey 2019https://ssrn.com/abstract=2078535 4

https://ssrn.com/abstract=2078535


• …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 2019https://ssrn.com/abstract=2078535 5

https://ssrn.com/abstract=2078535


Gold


The Bandwagon InvestorsDaily BTC=BTSP 6/12/2016 - 7/19/2018 (GMT)BarOHLC, BTC=BTSP, Trade Price6/11/2018, 6,781.17, 6,835.22, 6,634.86, 6,730.89, -50.28, (-0.74%)

Price

Auto

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J A S O N D J F M A M J J A S O N D J F M A M J JQ3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18Campbell R. Harvey 2019 8

BTC


BTC


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


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 DFinity3. Utility Tokens: Programmable blockchain assets: Storj, Golem (GNT), Sia (SC), FileCoin



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), REP6. Non-fungible Tokens: ERC-721, Dharma debt agreements, Decentraland (LAND), Cryptokitties



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


Storm of ICOs

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

https://www2.deloitte.com/us/en/pages/consulting/articles/initial-coin-offering-a-new-paradigm.html

Danger

https://www.wsj.com/articles/buyer-beware-hundreds-of-bitcoin-wannabes-show-hallmarks-of-fraud-1526573115



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




Danger


Danger

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




Danger

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

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Danger

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

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https://web.archive.org/web/20180228123858/https:/www.gizadevice.com/

Danger


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Danger


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Danger

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

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Danger

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

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https://icobench.com/u/marco

Danger

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

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https://www.cnbc.com/2018/03/09/cryptocurrency-scammers-of-giza-make-off-with-2-million-after-ico.html

Danger

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

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https://www.cnbc.com/2018/03/09/cryptocurrency-scammers-of-giza-make-off-with-2-million-after-ico.html


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https://www.coinschedule.com/stats.html

https://www.coinschedule.com/stats.html

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.

ICO Future

• No shortage of venture interest


https://www.bloomberg.com/news/articles/2018-10-05/yale-is-said-to-invest-in-crypto-fund-that-raised-400-million

https://www.bloomberg.com/news/articles/2018-10-05/yale-is-said-to-invest-in-crypto-fund-that-raised-400-million

ICO Future

The a16z crypto fundToday 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.

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)?


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)


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 34

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 35

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?


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?


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 38

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


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