A Robust Financing Theory of ICOs under Demand Uncertainty

The potential market demand has a major impact on the probability of Initial Coin Offerings (ICOs) success of Blockchain-based platforms. However, the exact market demand is difficult to estimate because the goods or services provided by the Blockchain-based platforms are generally hard to estimate and difficult to observe. Here, a robust ICO financing model is developed to cope with the demand uncertainty, which also allows the entrepreneur to be ambiguity aversive to the demand uncertainty. Moreover, we study how the entrepreneur's preference for robustness influences endogenously the optimal token financing ratio and other key factors such as the optimal output, the optimal efforts and the equilibrium token prices. It is shown that the entrepreneur with high degree of ambiguity aversion would transfer more demand uncertainties to investors by increasing token financing ratio, and exhaust fewer efforts to products, which in turn reduces the total value of the venture and the equilibrium token price. This model discloses that ambiguity premiums exist in the token market and tokens are likely to dominate venture capital equity for entrepreneurs with low ambiguity averse degrees