The document presents a taxonomy of Initial Coin Offering (ICO) processes developed through an empirical and conceptual research methodology. The taxonomy identifies four key dimensions of ICO processes: defining the market, determining token functionality and development, determining the token sales model, and user communication and engagement. It then provides examples of process characteristics within each dimension. The results show three common clusters of ICOs based on their goals and process characteristics: customer-centric service innovators, financial service innovators, and platform innovators. The taxonomy contributes a theoretical understanding of ICO processes and provides practical guidance for entrepreneurs conducting ICOs.

1. 1
Managing Initial Coin Offerings –
Towards a Process Taxonomy of ICO
Processes
by Nikolaus Lipusch
Workshop on Crowd Science 2019, Grand Wailea, Maui

2. 2
Agenda
1. Overview
2. Background
3. Research Question and Methodology
4. Results
5. Contribution

3. 3
Overview

4. 4
Research Goal
1.) What?
- Developing a Taxonomy of ICO Processes
2.) Why?
- To obtain a better understanding which process characteristics
must be considerd when conducting an ICO and how these
process characteristic relate to specific archetypes of ICOs
3) For whom?
- Researchers and entrepreneurs who are interested in the
foundations and the processsual nature of this young
phenomenon

5. 5
ICOs: A New Phenomenon
$0.1B
$0.4B
$2.8B
2016/Q4 2017/Q4
Investment in Blockchain Start-ups in US$m
Venture Capital ICOs
Top ICOs 2017
Hdac US$ 258M
Open source platform for
IoT solutions
Filecoin US$ 257M
Decentralized storage
network
EOS US$ 185M
Open source platform for
scalable decentralized
apps
Paragon US$ 183M
Decentralized
marketplace for the
cannabis industry
ICOs have become the preferred mechanism for blockchain-type start-ups
to raise funds and by 2017 even managed to surpass Venture Capital
funding
Blockchain start-ups absorbed 5X more capital via
ICOs than equity financings in 2017
Source: cbinsights 2018

6. 6
What is an ICO?
Initial Coin Offerings also known as “token-sales” or “crowd-sales” denote
a crowd-based fundraising method that is conducted via the sale of digital
tokens over a blockchain
Features of an ICO What an ICO is not
Token -
Issuer
Token -
Buyers
Start-up Investors
Generate Tokens Issue Tokens
Send CryptocurrencyGenerate Protocol
• Tokens are a promise to future rewards or
services of a company
• Tokens can be bought in exchange for
cryptocurrencies and act as transaction
mechanism on the blockchain
• Tokens are freely tradable on
crytocurrency exchanges (i.e. they have
high liquidity)
• Tokens are not a legal claim on debt or
equity
• Funds are not raised through an
intermediary (but directly by the
entrepreneur)
• ICOs are not regulated

7. 7
Background

8. 8
The Blockchain
Block 22 Block 23 Block 24
Hash of the
previous block
Hash of the
previous block
Hash
Hash
Data
(Transactions
etc.)
Data
(Transactions
etc.)
Data
(Transactions
etc.)
Definition: „The blockchain denotes a decentralized, shared
ledger that uses chronological, encrypted and chained blocks
to store verifiable and synchronized data across a peer-to-
peer (P2P) network” (Schlegel, Zavolokina, & Schwabe, 2018).

9. 9
How the Blockchain Works
v
User A wants to send
money to user B
The transaction gets
stored in a block1 2 3
The block is
broadcasted to the
network
User B receives the
money from User A 6 5 4
The network validates
and approves
transactions within the
block
The block is added to the chain
which represents a permanent,
imutable, and transparent
record of transactions

10. 10
Research Context – Blockchain History
The first blockchain was introduced by Satoshi Nakamoto in 2008
• The first use case of this blockchain was bitcoin
• Bitcoin had a single purpose i.e. the transfer of value
The second generation of blockchains came with the
introduction of Ethereum
• Multipurpose platform (e.g. browsers, wallets etc.)
• Turing complete programming language (i.e. Solidity)
• Introduction of Tokens with multiple functionalities
If tokens are used to raise funds they usually constitute
Initial Coin Offerings
t0
t1
time

11. 11
Cryptocurrencies vs. Tokens
Cryptocurrencies can be considered as a Token with a specific purpose or
use case
• Since tokens are programmable they can take on a variety of
functionalities e.g. Ether acts as a cryptocurrency as well as an access
token to use the services of the platform.
• Cryptocurrencies, usually act as a medium to transfer value e.g. bitcoin.
• Tokens denote “a round, metal or plastic disk which is used instead of
money in some machines”. Hence, tokens can be best understood as a
voucher or a gift card that can be used to consume a variety of services
within a certain context (e.g. a shop, a fair, a casino, a vending machine
or a platform) (source. Cambridge dictionary). They are not meant to be
traded (although they may be traded) e.g. Ether (i.e. the token of
Ethereum).

12. 13
Reseach Question
& Methodology

13. 14
Research Question
RQ: What processes and process characteristics must a
blockchain start-up consider during an ICO and how are these
processes related to the goals a start-up is trying to achieve?

14. 15
Methodology – Taxonomy Design
• To derive our taxonomy, we rely on a method proposed by Nickerson et
al. 2013
• The methodology follows a design-based (iterative) approach for
taxonomy development
• Two cycles: empirical-to-conceptual and conceptual-to empirical

15. 16
Empirical-to-Conceptual
• Analysis of 42 ICOS
• Case Documents (e.g.
Whitepapers, Yellow-papers)
• Press releases and news (e.g.
CoinDesk, Coin Telegraph
etc.)
• Keynotes (e.g. DevCons,
Deconomy etc.)
• Official Company Data (e.g
GitHub repository, Websites
etc.)
• Social Media Data (e.g.
Telegram)
Conceptual-to-Empirical
• Literature review on related
phenomena
• Crowdfunding (e.g.
Danmayr 2013)
• Auction Mechanisms
(Hausch et al. 1992)
• IPOs & Venture Capital
(Lehner et al. 2015)
• Blockchain (e.g. Beck et al.
2017)
© 2014 | Nikolaus Lipusch
Methodology – Taxonomy Design

16. 17
Results

17. 18
 inform
 consult
 involve
 mixed
 capped-sale
 uncapped-sale
 auction-sale
 other
 public-offering
 public-offering
with pre-sale
 private-offering
 self-selection
Defining the Market Determining Token
Functionality Token Development
and Creation Determining Token
Sales Model
 utility-based
tokens
 equity-based
tokens
 work-based
tokens
 asset-based
tokens
 native
development
 on-chain
development
 side-chain
development
User
Communication
& Engagement
Results: Taxonomy

18. 19
Results – Defining the Market
• Public Offering – a public offer to buy tokens. One
advantage of this kind of offering is that it does not limit
particiaption. This can lead to a potentially high number
of token users (e.g. high scalability)
• Private Offering – a private offer to buy tokens. This type
of offer is often restricted to company owners, developer’s
advisors (e.g. advisor sales) and other important partners
that take a key role in the creation of the project.(e.g.
high scalability)
• Public Offering with Pre-Sale – a public offer to buy
tokens. Additionally, companies can employ a pre-sale
which allows companies to issue a certain number of
tokens beforehand, usually at a discount to draw in early
users.

19. 20
Results – Defining the Market
• Private Offering with a Pre-Sale – a private offer to buy
tokens. Additionally, companies can employ a pre-sale
which allows companies to issue a certain number of
tokens beforehand, usually at a discount to reward early
contributers to a higher degree
• Self-Selection – Self-selection procedures require
interested investors to register on so-called whitelists to
get considered for an offering. Some companies use this
mechanism to determine market interest.

20. 21
Results – Determining Token Functionality
• Utility-based Tokens – the issuance of tokens (so-called
usage tokens) that permit token holders to use a certain
product or service. E.g. Filecoin tokens which provide users
access to decentralized storage.
• Work-based Tokens – the issuance of tokens that enable
holders to contribute work to a network and earn value in
exchange for their work. E.g. Numeraire tokens which
require users to stake tokens first in order to work and earn
additional tokens.
• Equity-based Tokens – the issuance of tokens that represent
a tradable financial asset. These types of tokens can be best
compared to a digital share in a company that entitles token
holders to equity-like benefits. E.g. tZero tokens.
• Asset-based Tokens – tokens that represent a physical asset.
E.g. Goldmint, which uses the blockchain technology to
tokenize gold. Tokenized gold can be stored and transferred
at lower costs.

21. 22
Results – Token Development & Creation
• Native Development – refers to a process where the
token is developed natively. This means that the company
has to create the token as well as the token’s underlying
infrastructure (i.e. a blockchain) (high development effort,
high flexibility).
• Side-chain Development – refers to a process where the
token is developed on a side-chain that runs parallel to a
main chain. Side-chains are usually employed by
companies that want to test new tokens or new token
models without effecting the integrity of the main chain.
• On-chain Development – refers to a process where the
token is developed on top of an existing infrastructure
(i.e. an existing blockchain) (lower development effort,
low flexibility).

22. 23
Results – Determining the Token Sales Model
• Capped Sales – refers to a process that puts a restriction on
the number of tokens that are going to be issued. This
means that the token supply and the token price are fixed.
• Auction Sales – refers to a sale in which buyers determine
the price and the total amount they are willing to spend. The
issuing company then sells a variable number of tokens at
the lowest bid price and in proportion to the total amount
pledged. E.g. Gnosis
• Uncapped Sales – refers to a process in which a company
sells an unlimited number of tokens at a fixed price over an
extended period of time. The main purpose of uncapped-
sales is to maximize both the number of investors involved
and the amount of capital flowing into the project.
• Others – These are sales that either constitute a mix of the
three main sales models or new sales models such as sales
with dynamic-ceilings or soft caps.

23. 24
Results – User Communication & Engagement
• Inform – concerns the creation and provision of basic
informational resources by the company (e.g. website, a
video, a whitepaper, a yellow paper. This form of
communication is non interactive and not legally binding.
• Involve – refers to multilateral and ongoing interaction
between the company and the crowd investors to establish
the trust that is necessary to attract a community of loyal
users (e.g. Reddit, Slack, Gitter or GitHub).
• Consult – involves one party inquiring or providing
information that goes beyond the basic information
requirements (e.g. questionnaires, sale documents and
purchase agreements). Companies use consulting to inform
investors about their rights and risks (may be legally
binding)
• Mix – constitutes a combination of all the aforementioned
types of communication.

24. 25
Results – Clusters of ICOs
Cluster 1 Cluster 2 Cluster 3
• Disrupting existing
industries through new
services and service
models
• Mostly public offerings
• Predominant use of
tokens is utility-based
• Very often on-chain
tokens
• Capped sales
• Intermediate degree of
interaction&
communication
• New financial
products and services
• Selective offerings
• Equity-based tokens
• Mostly on-chain
development
• Mostly capped sales
and auction sales
(probably to create
artificial scarcity)
• Low degree of
interaction &
communication
• Building new
platforms and
ecosystems
• Private offerings and
public offerings
• Predominant use of
work tokens
• Native development
• Uncapped sales
• High degree of
interaction &
communication
Customer-centric
Service Innovators
(45%)
Financial Service
Innovators (37%)
Platform
Innovators (18%)

25. 26
Contribution

26. 27
Theoretical and Practical Contribution
Theoretical contribution:
Practical contribution:
• Providing a theoretical understanding about ICOs an their
processual nature
• Exploring different archetypes of ICOs
• Providing entrepreneurs a basic understanding on how to conduct
ICOs depending on the goal they are pursuing

27. 28
End
Contact:
Nikolaus Lipusch
lipusch.nikolaus@gmail.com