An Optimal ICO Mechanism

David Cerezo Sánchez

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Optimal ICO; mechanism design; multi-unit auction; callable warrant; cryptoeconomics (search for similar items in EconPapers)

JEL-codes: C72 D44 D82 G23 G24 G32 L26 O33 (search for similar items in EconPapers)

New Economics Papers: this item is included in nep-des and nep-mic

Date: 2017-09-09

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https://mpra.ub.uni-muenchen.de/81285/1/MPRA_paper_81285.pdf original version (application/pdf)

https://mpra.ub.uni-muenchen.de/82062/8/MPRA_paper_82062.pdf revised version (application/pdf)

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