This Article presents the legal literature’s first detailed analysis of the inner workings of Initial Coin Offerings (ICOs). We characterize the ICO as an example of financial innovation, placing it in kinship with venture capital contracting, asset securitization, and (obviously) the IPO. We also take the form seriously as an example of technological innovation, in which promoters are beginning to effectuate their promises to investors through computer code, rather than traditional contract.

To understand the dynamics of this shift, we first collect contracts, “whitepapers,” and other disclosures for the fifty top-grossing ICOs of 2017. We then analyze how the software code controlling the projects’ ICOs reflected (or failed to reflect) their disclosures. Our inquiry reveals that many ICOs failed even to promise that they would protect investors against insider self-dealing. Fewer still manifested such promises in code. Surprisingly, in a community known for espousing a technolibertarian belief in the power of “trustless trust” built with carefully designed code, a significant fraction of issuers retained centralized control through previously undisclosed code permitting modification of the entities’ governing structures.

These findings offer valuable lessons to legal scholars, economists, and policymakers about the roles played by gatekeepers, the value of regulation, and the possibilities for socially valuable private ordering in a relatively anonymous, decentralized environment.


    1. From Debt and Equity to Native Coin
    2. Understanding Cryptoassets
    3. ICOs Hit the Bigtime
    1. Supply Promises
      1. Minting
      2. Increasing Supply
      3. Decreasing Supply (or “Burning”)
    2. Vesting Promises
    3. Modifiability
    1. The Scene from 50,000 Feet
    2. Supply Promises: Scarcity and Burning
    3. Vesting Promises
    4. Modification Promises
    5. Summary
    1. Paper, Code, and Market Response
    2. Whose Market Is This?
      1. Irrational Exuberance
      2. Illicit Demand
      3. Crypto Winnings
      4. Smart Money
    3. Whose Market Might It Become?





If you believe what you read on social media, the world of venture finance is undergoing a sea change. Old institutions like banks and venture capital firms are finding themselves supplanted by masses of individuals coordinating through new financial platforms. 1 See, e.g., Chance Barnett, Trends Show Crowdfunding to Surpass VC After 2016, Medium: Startup Grind (July 22, 2016), [] (“[H]igh growth entrepreneurs . . . have more sources and channels for finding capital than they’ve ever had.”). Excessively compensated elites are on the outs. They are being replaced—so say the believers—by equity crowdfunding, peer-to-peer lending, and the wisdom of the crowd. 2 See, e.g., Olav Sorenson, Valentina Assenova, Guan-Cheng Li, Jason Boada & Lee Fleming, Expanded Innovation Finance via Crowdfunding, 354 Science 1526, 1526 (2016) (finding that crowdfunding has channeled capital to innovators outside the traditional ambit of venture capital financing). The rise of the Initial Coin Offering (ICO) is a chapter in this story, and this Article’s subject. 3 For an introduction to the law, economics, and sociology of peer-to-peer, networked culture, see generally Yochai Benkler, The Wealth of Networks: How Social Production Transforms Markets and Freedom (2006). Finance, too, is entwined with the emerging networked mode of information production. See, e.g., Chris Brummer, Disruptive Technology and Securities Regulation, 84 Fordham L. Rev. 977, 997–1020 (2015); Kathryn Judge, The Future of Direct Finance: The Diverging Paths of Peer-to-Peer Lending and Kickstarter, 50 Wake Forest L. Rev. 603, 613–21 (2015); Elizabeth Pollman, Information Issues on Wall Street 2.0, 161 U. Pa. L. Rev. 179, 202–05 (2012). One goal of this Article is to place questions about the culture and economics of networked information production on the one hand, and finance on the other, within a common frame.

Obviously, the ICO was named after the IPO, or “Initial Public Offering.” But though the IPO has been familiar for almost a century, the ICO is exotic. Unlike its namesake, an ICO does not typically involve the sale of equity in (or governance rights pertaining to) a corporation. 4 Here, as elsewhere, this Article makes general claims in the text but acknowledges exceptions in the footnotes. For instance, ICOs can involve the sale of equity, but it is rare. See infra note 209. Instead, ICO participants buy an asset—a “token”—that enables its holder to use or govern a network that the promoters plan to develop with the funds raised through the sale. 5 While an ICO can occur after a network has been built, the core practice is to raise funds predevelopment. See infra sections II.A–.B. It would be as if Coca-Cola had funded its initial deployment of vending machines through the sale of tokens its machines might one day require. The token holders’ interests would have been imperfectly aligned with the interests of investors who owned shares in Coca-Cola, Inc. Rather than caring about share value, they would have cared about token value, which would relate to the supply of the tokens and demand for vended Coke.

For this hypothetical Coca-Cola, it’s easy to imagine physical tokens and real vending machines. But for ICOs, the tokens and the “machines” they operate are digital. They exist on the internet, embodied in software code. The key forms of software are known as “smart contracts”—automated, “if-this-then-that” rules that coders can design to govern the functionality of the digital “crypto” assets sold in ICOs. 6 Smart contracts were first introduced by Nick Szabo, who drew inspiration from the “humble vending machine.” Nick Szabo, Formalizing and Securing Relationships on Public Networks, First Monday (Sept. 1, 1997), [].

Smart contracts may be digital and automated, but they help structure real-world relationships. At present, relationships between ICO promoters and token buyers are quite nebulous. 7 See Initial Coin Offerings (ICOs)—What to Know Now and Time-Tested Tips for Investors, Fin. Indus. Regulatory Auth., [] (last updated Aug. 16, 2018) (“ICO promoters and issuers may be offering the tokens or coins to investors without typical disclosures and customer access to documents required by U.S. regulators like the Securities and Exchange Commission (SEC) that help investors make an informed investment decision.”). Imagine that those Coca-Cola token investors lacked established legal means to enforce any promises made by Coca-Cola, Inc., cap the supply of tokens, require the use of those tokens to buy Coca-Cola from vending machines, limit sales of Coca-Cola through non-vending-machine channels, or even deploy machines at all. That scenario roughly captures the state of ICO legal contracting and governance today. This is a financial form ripe for fraud, and it has allegedly been used to that precise end. 8 Shane Shifflett & Coulter Jones, Buyer Beware: Hundreds of Bitcoin Wannabes Show Hallmarks of Fraud, Wall St. J. (May 17, 2018), (on file with the Columbia Law Review) (finding that approximately 20% of ICOs examined by the authors have red flags, including plagiarism in their whitepapers, false promises of returns, and fake founder profiles); cf. John M. Griffin & Amin Shams, Is Bitcoin Really Un-tethered? 4 (June 13, 2018) (unpublished manuscript), (on file with the Columbia Law Review) (arguing that 50% of the rise in Bitcoin price and 64% of rise in other top cryptocurrency prices between March 2017 and March 2018 can be explained as the product of timed market manipulation).

But fraud also went hand-in-hand with early financial markets; 9 See, e.g., Ian Klaus, Forging Capitalism: Rogues, Swindlers, Frauds, and the Rise of Modern Finance 39–47 (2014) (recounting successful trades at the London Stock Exchange in February 1814 based on falsified reports of Napoleon’s death). its presence settles little about the fate of the ICO form. According to some, the ICO is an innovative, low-cost method to raise capital and enables a widened range of potential investors to support the development of new, software-based enterprises. 10 See Nathaniel Popper, Easiest Path to Riches on the Web? An Initial Coin Offering, N.Y. Times: DealBook (June 23, 2017), (on file with the Columbia Law Review) [hereinafter Popper, Easiest Path]. Nathaniel Popper, an excellent observer of this market at its inception, wrote generally on the bitcoin phenomenon before it reached a wide audience. See Nathaniel Popper, Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money (2015) [hereinafter Popper, Digital Gold]. In 2017—the year that ICOs entered popular consciousness 11 See, e.g., Laura Shin, Here’s the Man Who Created ICOs and This Is the New Token He’s Backing, Forbes (Sept. 21, 2017),
2017/09/21/heres-the-man-who-created-icos-and-this-is-the-new-token-hes-backing/ [] (identifying 2017 as the year ICOs became a “runaway trend”).
—453 ICOs raised an estimated $6.58 billion. 12 Cryptocurrency ICO Stats 2017, CoinSchedule, [] (last visited Feb. 2, 2019). This Article will later address the difficulties of calculating accurate network values. See infra note 293. Solely to ease exposition, this Article will generally use market values (in U.S. dollars) reported by widely used coin-data sites. By July 1, 2018, an additional 684 ICOs had raised an estimated $17.47 billion. 13 See Cryptocurrency ICO Stats 2018, CoinSchedule,
stats.html?year=2018 [] (last visited Feb. 2, 2019) (summing data for months January through June).
Yet only a few months later, ICO project valuations were at fractions of previous years’ highs, causing some analysts to proclaim a “crypto winter.” 14 Charles Bovaird, What Will It Take to Thaw the Crypto Winter?, Forbes (Dec. 13, 2018), [] (“The market for [ICO]s, in particular, has been hard-hit . . . . Many of the companies that held these token sales in 2017, a time when the entire market was arguably suffering from ICO mania, have been encountering serious challenges.”); Samantha Chang, ICO Market Is Dead: Crypto Investor Barry Silbert, CCN (Nov. 28, 2018), [] (quoting Barry Silbert’s assertion that “[t]he ICO market is dead—over” (internal quotation marks omitted))

Twenty-four billion dollars raised over eighteen months is not chump change, but Facebook raised sixteen billion dollars in one day with its 2012 IPO. 15 See Evelyn M. Rusli & Peter Eavis, Facebook Raises $16 Billion in I.P.O., N.Y. Times: DealBook (May 17, 2012), []. Though one might not jump to read an entire law review article about Facebook’s IPO, an article about the strange world of public coin offerings may present a more compelling proposition. Indeed, an inquiry into ICOs could be fascinating even if (perhaps especially if) the entire ICO market were to dry up tomorrow.

As we aim to show, ICOs have much to teach us about the uneasy relationships between law and technology in our present moment. 16 We join a nascent literature on this topic. See generally Iris M. Barsan, Legal Challenges of Initial Coin Offerings, 3 Revue Trimestrielle de Droit Financier [RTDF] 54 (2017); Usha R. Rodrigues, Law and the Blockchain, 104 Iowa L. Rev. 679 (2019) [hereinafter Rodrigues, Law and the Blockchain]; Kevin Werbach, Trust but Verify: Why the Blockchain Needs the Law, 33 Berkeley Tech. L.J. 487 (2018) [hereinafter Werbach, Trust but Verify]; Dirk A. Zetzsche, Ross P. Buckley, Douglas W. Arner & Linus Föhr, The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators (Univ. du Lux. Law Working Paper Series, Paper No. 2017-011, 2018), (on file with the Columbia Law Review) (noting severe disclosure failures in a global and rapidly growing market). To students of capital markets, the interest should be obvious. One basic question about our new financial contracting world is simple: How are investors protected from exploitation? 17 Cf. Darian M. Ibrahim, Equity Crowdfunding: A Market for Lemons?, 100 Minn. L. Rev. 561, 587–603 (2015) (describing and dismissing worries that crowdfunding markets might be dominated by low-quality startups with few ways for investors to distinguish better ones from the pack). For regulators, scholars, and investors this issue is an increasingly pressing one. As of early 2019, government agencies at both the federal and state levels have launched ICO investigations, and multiple firms have been charged as fraudulent or criminal enterprises. 18 See In re Coinalpha Advisors LLC, Securities Act Release No. 10582, 2018 WL 6433070, at *2 (Dec. 7, 2018) (charging a digital asset investment fund with violation of Sections 5(a) and 5(c) of the Securities Act); News Release, Colo. Dep’t of Regulatory Agencies, Two Companies Promoting Cryptocurrencies Under Scrutiny by Colorado Securities Commissioner 1 (May 3, 2018) (on file with the Columbia Law Review) (announcing orders against two ICO teams for potentially violating Colorado securities laws); Press Release, N. Am. Sec. Admin. Ass’n, NASAA Updates Coordinated Crypto Crackdown (Aug. 28, 2018), [] (noting a coordinated enforcement effort by state regulators against ICOs and cryptoassets, resulting in 200 active investigations and 46 enforcement actions); Press Release, N.D. Sec. Dep’t, Securities Commissioner Issues Orders Against 3 More Companies Promoting Initial Coin Offerings in North Dakota (Oct 11, 2018), [https://] (announcing charges against three ICO teams for “promoting unregistered and potentially fraudulent securities in North Dakota”); Press Release, SEC, SEC Charges EtherDelta Founder with Operating an Unregistered Exchange (Nov. 8, 2018), [] (discussing charges against the operator of a cryptoasset exchange that facilitates ICO token sales); Press Release, SEC, SEC Halts Fraudulent Scheme Involving Unregistered ICO (Apr. 2, 2018), [
LZ3N-Q2BG] (announcing the charging of “two co-founders of a purported financial services start-up with orchestrating a fraudulent” ICO “that raised more than $32 million from thousands of investors last year”); Press Release, SEC, Two Celebrities Charged with Unlawfully Touting Coin Offerings (Nov. 29, 2018), [] (discussing charges against music producer DJ Khaled and boxer Floyd Mayweather Jr. with unlawfully concealing payments they received for promoting ICO tokens); Press Release, SEC, Two ICO Issuers Settle SEC Registration Charges, Agree to Register Tokens as Securities (Nov. 16, 2018), [] (discussing orders entered against the Airfox and Paragon ICO teams for sales of unregistered securities); Press Release, Tex. State Sec. Bd., $4 Billion Crypto-Promoter Ordered to Halt Fraudulent Sales (Jan. 4, 2018), [] (noting that the Texas Securities Commissioner entered an “Emergency Cease and Desist Order to halt the multiple investment programs operated by BitConnect, an overseas company that claims a market share of $4.1 billion for its cryptocurrency coins”). For a broader discussion of legal risks accompanying ICOs, see generally Jonathan Rohr & Aaron Wright, Blockchain-Based Token Sales, Initial Coin Offerings, and the Democratization of Public Capital Markets 97 (Cardozo Legal Studies Research Paper No. 527, 2018),
abstract_id=3048104 (on file with the Columbia Law Review) (discussing risk of fraud and abuse).
Even blockchain technologists admit that ICOs as a form of fundraising suffer credibility problems, as many projects have still not delivered functional products. 19 See Bovaird, supra note 14 (“Some have criticized the methods used in these token sales, which have frequently involved nothing more than . . . [an] idea outlined in a white paper.”); see also Rocco, Futility Tokens: A Utility-Based Post-Mortem, Token Econ. (Oct. 9, 2018), [] (dissecting ICO tokens offered by various projects and finding that many could never have supported their touted functionality while generating a profit); Nathaniel Whittlemore, Crypto Narrative Watch: Crypto Winter Edition, Token Econ. (Dec. 19, 2018), [] (noting that many ICO teams promised their tokens would eventually provide specific functions, but that such functionality was still missing as of late 2018).

Less obviously, an understanding of the ICO experience can also inform debates about the digital future of capitalism. 20 See, e.g., Julie E. Cohen, The Regulatory State in the Information Age, 17 Theoretical Inquiries L. 369, 375 (2016) (“Emerging, nontraditional regulatory models have tended to be both opaque to external observation and highly prone to capture. New institutional forms that might ensure their legal and political accountability have been slow to develop.”). ICOs represent the increasing financialization of internet-based peer production, and they also reflect the informational ecosystem the internet has wrought. The legal system’s interactions with these trends are on display in what follows.

This Article is built around a survey of the 50 ICOs that raised the most capital in 2017 and the role that computer code plays in structuring them. The presence of a cryptoasset at the heart of an offering enables entrepreneurs to deliver investor protections through computer code, rather than through legalistic means. This technological capacity was central to the ideological and practical case advanced by the entrepreneurs who engaged in ICOs. In the 2017 market, founders spoke of automated, “[d]ynamic [c]eiling[s]” for cryptoasset supply; 21 The Status Network: A Strategy Towards Mass Adoption of Ethereum, Status (June 15, 2017), []. of placing founders’ cryptoasset allocations in “time-locked smart contracts” to align incentives for productivity; 22 Terms of Token Sale, Storj Labs (BVI) Ltd. 14, [] (last updated May 18, 2017). and of replacing trusted parties with decentralized and verifiable computation. 23 See Protocol Labs, Filecoin: A Decentralized Storage Network 8 (2017), []. We take an initial look at examples of smart contract design to establish that code does have the potential to become either a substitute for or a complement to old-fashioned legal governance in financial contracting.

But potential is not “reality,” and this study shows just how far code falls short of expectations for the top 50 ICOs of 2017. We analyze the relationship between the “paper” promises made by ICO promoters in their offering documents and the actual functionality of the digital assets they deliver. This Article establishes actual functionality by examining the smart contracts associated with each ICO, along with the broader software environments through which those smart contracts function.(These are known as “distributed ledgers” or “blockchains,” which we discuss further below.) Through careful auditing of the gap between what ICOs promise and what their code delivers, we aim to present coin offerings at a deeper level of institutional detail than is currently present in the literature. Indeed, though legal scholars have begun writing about smart contracts in theory, we are the first to take smart contracts seriously as real-world objects of study. 24 See generally Mark C. Suchman, The Contract as Social Artifact, 37 Law & Soc’y Rev. 91 (2003) (articulating a research agenda examining contractual artifacts as such). For two excellent primers on smart contracts, see generally Primavera De Filippi & Aaron Wright, Blockchain and the Law: The Rule of Code 72–88 (2018); Kevin Werbach & Nicolas Cornell, Contracts Ex Machina, 67 Duke L.J. 313 (2017).

We evaluate our sample on three aspects of governance that ICO proponents have claimed can be delivered through code and which economic theory suggests should be salient to ICO investors. First, did ICO promoters make any promises (and encode those assurances) to restrict the supply of their cryptoassets? Second, did ICO promoters pledge (and build their promises into smart contracts) to restrict the transfer of any cryptoassets allocated to insiders according to a vesting or lock-up plan? Third, did ICO promoters use code to retain the power to modify the smart contracts governing the tokens they sold, and if so, did they disclose (in natural language) that they had allocated themselves that power? Credible commitments regarding these salient cryptoasset qualities should matter to an investor interested in the economic fundamentals of an ICO.

Our basic finding is that ICO code and ICO disclosures often do not match. In a financial ecosystem built around the proposition that regulation is unnecessary because code is the final guarantee of performance, the absence of coded governance protections is troubling. We also show that at least some popular ICOs have retained the power to modify their tokens’ rights but have failed to disclose that ability in plain English.

One takeaway is that no one reads smart contracts, 25 The obvious allusion is to ordinary contractual fine print. Cf. Yannis Bakos, Florencia Marotta-Wurgler & David R. Trossen, Does Anyone Read the Fine Print? Consumer Attention to Standard Form Contracts, 43 J. Legal Stud. 1 (2014) (finding vanishingly low reading rates for end-user license agreements). making them a rickety wheel on the ICO investment vehicle. Why might this be, and how significant is it? In evaluating our findings, we consider a few potential explanations for the mismatches between code and disclosure that we observe. We ultimately conclude that while the disjunct is troubling, the normative implications of our project will turn on learning more about who buys ICOs and why. 26 We hasten to add that the ICO is not inherently a scam: Economic theorists have recently begun developing models that show the potential for cryptoassets to unlock information and value for investors during the early stages of an entrepreneurial venture. See Christian Catalini & Joshua S. Gans, Initial Coin Offerings and the Value of Crypto Tokens 2–5 (MIT Sloan Research Paper No. 5347-18, 2018),
abstract=3137213 (on file with the Columbia Law Review); Sabrina Howell, Marina Niessner & David Yermack, Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales 1 (NBER Working Paper No. 24774, 2018), (on file with the Columbia Law Review); Thomas Bourveau, Emmanuel T. De George, Atif Ellahie & Daniele Macciocchi, Initial Coin Offerings: Early Evidence on the Role of Disclosure in the Unregulated Crypto Market 5 (July 9, 2018) (unpublished manuscript), (on file with the Columbia Law Review) (finding a measure of disclosure is correlated with market values). But see Eric Budish, The Economic Limits of Bitcoin and the Blockchain 5–11 (NBER Working Paper No. 24717, 2018), (on file with the Columbia Law Review) (arguing that if bitcoin were an economically important store of value, it would be hacked).

We proceed as follows. Part I provides clear and precise definitions of various aspects of ICO machinery. It also presents the history of various components: cryptocurrencies, blockchain-based networks, smart contracts, and ICO technology. Part II describes the three ways that we evaluate the quality of an ICO’s paper–code match and offers an introduction to the mechanisms by which tokens can vouch for quality. Part III presents the methods of our empirical study. It describes our sources, collections, coding, and smart contract audit procedures. Part IV offers evidence that the ICO market does not vet smart contract code for the qualities we have identified and offers theories as to why. It also suggests how researchers could help regulators and lawmakers in better understanding and overseeing this new business form.

I. An Introduction to Tokens

To set the stage for our analysis of ICO quality—and our premortem on the current market’s pathologies—this Part presents an operational account of ICO components and mechanics.

A. From Debt and Equity to Native Coin

Consider a group of entrepreneurs who want to create a soda company. Though they have an amazing recipe, they lack sufficient seed capital to quit their day jobs and market their soda to the world. To access the traditional capital markets, they might form a corporation and seek a business loan, or perhaps a few rounds of private venture capital funding. If successful, they might then choose to issue shares on the New York Stock Exchange (NYSE). In exchange for payment of a price (in dollars) set by investment bankers through careful underwriting, the team would part with shares of its company. The purchasers of those shares would then possess a bundle of rights to govern the corporation, along with residual claims on its assets in proportion to the number of shares they own. Once built, the corporation could charge its customers in dollars, pay its employees and suppliers in the same, and then distribute the leftovers to its shareholders.

The new world of coin-based finance looks different from this traditional model. Instead of issuing contractual claims on the assets of a legal entity (in the form of debt or equity), the team might now issue a token—call it Colacoin—that it promises will be the only way to buy sodas from its (yet to be deployed) vending machines. 27 To users, Colacoin thus resembles the coupons, scrips, airmiles, and other cash substitutes that merchants have employed throughout the past century and a half. See Norman I. Silber & Steven Stites, Merchant Authorized Consumer Cash Substitutes 1–2 (Hofstra Legal Studies Research Paper Series, Research Paper No. 2018-03, 2018), (on file with the Columbia Law Review). Coca-Cola offered a coupon redeemable for one glass of soda as early as 1887. See id. at 2. The team could also pledge that possession of Colacoins would enable their holders to vote on proposed alterations to the vending machine’s prices. Further, they could even commit to paying suppliers—bottling companies, truckers, lawyers who work for them—in Colacoin. If, and as long as, the dehydrated people of the world want access to machine-vended cola, then Colacoin will hold value. And if Colacoin is easily exchangeable for dollars, then the nascent company’s truckers and lawyers will not mind receiving their initial payments in a strange currency. Replace Coca-Cola with a software-based venture (like a file-sharing service or a platform for streaming video), and Colacoin with a cryptoasset, and you have an ICO.

Obviously, the scenarios differ in a few ways. First, they diverge in terms of how they allocate claims on the entrepreneurs’ business. Traditional capital markets require business owners to contractually divest themselves of various rights over their corporation’s assets. 28 See, e.g., Ivo Welch, Corporate Finance 4–5 (4th ed. 2017) (discussing tradeoffs between various contractual methods of financing). In contrast, the ICO method can leave economic ownership and legal control unencumbered. 29 See Balaji S. Srinivasan, Thoughts on Tokens, (May 27, 2017), []. Clearly, when a token provides rights to purchasers to use a future service, the owner is, in a sense, encumbered. The effect is similar to an airline being encumbered by its loyal customers’ airmiles. We mean that tokens do not typically divide the formal rights of ownership into pieces.

Second, they vary in their source of value. While stock prices should reflect the net present value of the legal rights to the company’s expected future cash flows, 30 See, e.g., Aswath Damodaran, Investment Valuation: Tools and Techniques for Determining the Value of Any Asset 11–19 (3d ed. 2012). cryptoasset pricing should reflect an equilibrium between token demand, which is driven by the present value of expected future use and exchange options within the token’s native ecosystem, and token supply, which is driven by the token’s monetary policy. 31 Work on cryptoasset valuation is in its early stages. See, e.g., Chris Burniske & Jack Tatar, Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond 171–84 (2017) (suggesting cryptoasset valuation models); Catalini & Gans, supra note 26, at 3–5; Aswath Damodaran, The Bitcoin Boom: Asset, Currency, Commodity, or Collectible?, Musings on Mkts. (Oct. 24, 2017), [] (suggesting that cryptoassets share characteristics with both currencies and commodities). For recent empirical work on cryptoasset valuation, see generally Hugo Benedetti & Leonard Kostovetsky, Digital Tulips? Returns to Investors in Initial Coin Offerings (May 20, 2018) (unpublished manuscript), (on file with the Columbia Law Review) (finding that ICO underpricing is driving by Twitter followers and activity); Bourveau et al., supra note 26 (examining the the effects of disclosures on market quality for ICOs); Jongsub Lee, Tao Li & Donghwa Shin, The Wisdom of Crowds and Information Cascades in FinTech: Evidence From Initial Coin Offers (Sept. 1, 2018) (unpublished manuscript), https:// (on file with the Columbia Law Review) (finding that analyst ratings are associated with increased value); Christian Masiak, Jorn H. Block, Tobias Masiak, Matthias Neuenkirch & Katja Pielen, The Market Cycles of ICOs, Bitcoin, and Ether (July 9, 2018) (unpublished manuscript), (on file with the Columbia Law Review) (finding that ICO prices interact with the prices of bitcoin and ether); Paul Momtaz, Putting Numbers on the Coins: The Pricing and Performance of Initial Coin Offerings (May 27, 2018) (unpublished manuscript), (on file with the Columbia Law Review) (finding that ICOs are systematically underpriced, but that long-term performance is mixed); Lauren Rhue, Trust Is All You Need: An Empirical Exploration of Initial Coin Offers (ICOs) and ICO Reputation Scores (May 16, 2018) (unpublished manuscript),
abstract=3179723 (on file with the Columbia Law Review) (finding that reputation scores from rating sites are not very well correlated with each other or with value, but hype and internet buzz are correlated with value).

Third, the infrastructure of capital markets enables vetting, trading, and liquidity in established ways. A mighty edifice of regulation and institutional capital stands behind each issuance: Investors know, or at least have the tools to inform themselves about, what they are getting. By contrast, cryptomarkets are new, their players mere years or months old. 32 See, e.g., Darryn Pollock, How Binance Conquered the Cryptocurrency World with Help of a Utility Token, Forbes (Oct. 8, 2018),
2018/10/08/how-binance-conquered-the-cryptocurrency-world-on-the-back-of-a-utility-token/ [] (describing the rapid rise of Binance, which was established in 2017).
No Wall Street investment bank has backed an ICO. 33 While venture capitalists have taken cryptoassets into their portfolios, see infra section IV.B.4, that is not the same as the underwriting function performed by investment banks in the traditional capital markets. For a model describing when venturers will turn to traditional capital sources instead of ICOs, see generally Jiri Chod & Evgeny Lyandres, A Theory of ICOs: Diversification, Agency, and Information Failure (July 18, 2018) (unpublished manuscript), (on file with the Columbia Law Review). Indeed, the absence of ICO-specific regulation and intermediaries is seen to be a feature, not a bug, by many enthusiasts. 34 See Jesse Powell, Kraken’s Position on Regulation, Kraken (Apr. 22, 2018), [] (arguing that regulatory action “doesn’t matter to most crypto traders”).

Finally, and perhaps most significantly to our lawyer-readers, ICOs expand the role played by computer code in governing transactional relationships. Traditional capital-market transactions are heavily mediated by laws, regulations, contracts, and social norms. 35 Though market fundamentalists might occasionally forget this, it is essential to any understanding of the contemporary economy. See, e.g., David Singh Grewal, Laws of Capitalism, 128 Harv. L. Rev. 626, 652 (2014) (reviewing Thomas Piketty, Capital in the Twenty-First Century (2014)) (“Capitalism is fundamentally a legal ordering: the bargains at the heart of capitalism are products of law.”); Katherina Pistor, A Legal Theory of Finance, 41 J. Comp. Econ. 315, 315 (2013) (“[L]aw and finance are locked into a dynamic process in which the rules that establish the game are continuously challenged by new contractual devices, which in turn seek legal vindication.”). ICO transactions augment, and perhaps replace, those mediators by embedding controls within the smart contracts through which rules function. 36 This places them in the tradition of code-based controls studied most closely in the context of intellectual property. See, e.g., Julie E. Cohen, Pervasively Distributed Copyright Enforcement, 95 Geo. L.J. 1, 2 (2006) (discussing this in the context of copyright enforcement). At the same time, they also create new roles for lawyers and other legal-adjacent personnel.

The Colacoin clearly would be a far more experimental way to raise capital for the underlying soda company than through the sale of debt or equity. 37 Cryptoasset sales can be viewed as a new strategy for “decoupling” economic ownership from the control of business ventures that Henry Hu has documented. See Henry T.C. Hu, Financial Innovation and Governance Mechanisms: The Evolution of Decoupling and Transparency, 70 Bus. Law. 347, 351, 354–63 (2015). Yet despite their differences, the scenarios share something at a particular level of abstraction: The value of debt, equity, and Colacoin tokens all depend heavily on the success of the entrepreneurial team in building and attracting customers to the product.

B. Understanding Cryptoassets

A working conception of ICOs begins with the cryptoassets—the digital coins and tokens—at the center of the operation. Like a physical coin, a cryptoasset is scarce and control over it is transferable. But while physical coins are transmitted hand-to-hand (or hand-to-machine), changes in control of cryptoassets occur through the networks that host them (via the transfer of a digital key). 38 See Rainer Böhme, Nicolas Christin, Benjamin Edelman & Tyler Moore, Bitcoin: Economics, Technology, and Governance, 29 J. Econ. Persp. 213, 213 (2015). Network communication protocols are the linguistic conventions that enable transmissions of intelligible information between participants in a network. See generally Andrew S. Tannenbaum & David J. Wetherall, Computer Networks 29–40, 75–81 (5th ed. 2011). Indeed, a cryptoasset is nothing more than an entry in a ledger that specifies that a particular user, identified by a certain “private key” (essentially, a fancy password) is the sole party able to exercise a discrete set of powers associated with the ledger entry. While their private keys might travel hand-to-hand in the physical world, the actual cryptoasset is destined to remain a mere ledger entry, forever locked inside its “native” protocol. 39 By this we mean that the cryptoasset is never itself transferred. While the record denoting its ownership may be modified, the asset is doomed to remain but an abstraction represented within the ledger on which it originated.

Cryptoasset history begins with Bitcoin currency and the Bitcoin ledger (also known as a “blockchain”). 40 On the prehistory and history of Bitcoin, see generally Arvind Narayanan & Jeremy Clark, Bitcoin’s Academic Pedigree, ACM Queue (Aug. 29, 2017),
detail.cfm?ref=rss&id=3136559 []; Popper, Digital Gold, supra note 10.
Prior to their advent, money was either held in physical form (for example, coins or paper notes) or on the ledger of a centralized intermediary (for example, bank deposits or PayPal balances). 41 See Morgan Ricks, The Money Problem: Rethinking Financial Regulation 58 (2016) (distinguishing between certificated and uncertificated forms of money). Bitcoin is the first significant digital currency system that needs no centralized intermediary to maintain proper books. 42 See generally De Filippi & Wright, supra note 24, at 61–71; Kevin Werbach, Blockchain and the New Architecture of Trust (2018). The key to the ledger’s design—and that of the public blockchain-based systems in its wake—is how it maintains a trustworthy record of ownership rights. Rather than being centralized within a single firm, the Bitcoin ledger is replicated and distributed across a network of computers that communicate with each other via the internet. 43 See Arvind Narayanan, Joseph Bonneau, Edward Felten, Andrew Miller & Steven Goldfeder, Bitcoin and Cryptocurrency Technologies 27–50 (2016); Böhme et al., supra note 38, at 216. These computers are called “nodes.” 44 Narayanan et al., supra note 43, at 7–10. When a holder of bitcoins distributes a message to the network’s nodes asking to transmit some bitcoins to another user, the transactors need not rely on the trustworthiness of any actor in the system to revise their copy of the ledger appropriately. 45 See Werbach, Trust but Verify, supra note 16, at 512–13. Rather, they rely on economic incentives and code-based controls that govern the nodes’ behavior to ensure that all copies of the ledger are updated identically. 46 See id. This reliance on incentives and code-based controls, rather than social control mechanisms like law and norms, was a central objective of early cryptocurrency visionaries. See Popper, Digital Gold, supra note 10, at 119–20. But it does not mean that Bitcoin is necessarily impossible to hack. See Ittay Eyal & Emin Gün Sirer, Majority Is Not Enough: Bitcoin Mining Is Vulnerable, Comm. ACM, July 2018, at 95, 95.

The shift toward a broad range of blockchain-based business plans was realized in another network: Ethereum. The designers of Ethereum produced a general-purpose computational system that operates through a public blockchain. 47 See Werbach & Cornell, supra note 24, at 333–35; Rohr & Wright, supra note 18, at 19. To perform computations on this decentralized “world computer,” users must pay a per-function fee of “ether”—a “gas” charge—which functions as Ethereum’s currency. 48 Ethereum Whitepaper: A Next Generation Smart Contract and Decentralized Application Platform, Github, [] (last visited Feb. 4, 2019). The “gas” charged is proportional to the complexity of the computation requested. Id. As a result, the value of ether depends significantly on the supply of, and demand for, computational power active on the Ethereum system. One of the key reasons for Ethereum’s popularity is its support for snippets of computer code that interact with the ledger known as smart contracts. 49 See generally Karen E.C. Levy, Book-Smart, Not Street-Smart: Blockchain-Based Smart Contracts and the Social Workings of Law, 3 Engaging Sci. Tech. & Soc’y 1 (2017); Werbach & Cornell, supra note 24; Jeremy M. Sklaroff, Comment, Smart Contracts and the Cost of Inflexibility, 166 U. Pa. L. Rev. 263 (2017). One can think of smart contracts as a prewritten set of system-performance rules. Just as legal contracts govern the allocation of paper money among transactors, smart contract code governs the transmission of ether, or other stored assets, among transactors on the Ethereum system. 50 In most ways, calling these code snippets “contracts” is quite misleading, but we are stuck with the dominant terminology. For careful discussions, see generally J.G. Allen, Wrapped and Stacked: ‘Smart Contracts’ and the Interaction of Natural and Formal Language, 14 Euro. Rev. Cont. L. 307 (2018); James Grimmelmann, All Smart Contracts Are Ambiguous, J.L. & Innovation (forthcoming 2019) (on file with the Columbia Law Review).

To understand how Ethereum works, imagine that you drop a quarter into a vending machine slot and down falls a can of Coca-Cola. This “humble” mechanism serves as the inspiration for wide-ranging creativity on Ethereum, where smart contract engineers write scripts about how the system will behave in response to various inputs. 51 It also served as inspiration for Szabo’s initial coinage of the smart contract idea. See supra note 6 and accompanying text. These inputs might include basic information about where to send ether, and also more complex information, like data from a weather vane. 52 That is, some device might transmit readable data to an Ethereum-based smart contract from the outside world—for instance, a website—via an “oracle.” See Fan Zhang, Ethan Cecchetti, Kyle Croman, Ari Juels & Elaine Shi, Town Crier: An Authenticated Data Feed for Smart Contracts, 2016 Proc. 2016 SIGSAC Conf. on Computer & Comm. Security 270, 270; Houman Shadab, What Smart Contracts Need to Learn, Lawbitrage (Sept. 4, 2014), []. Ether plays the role of both the vending machine’s quarters and its most important payload—the Coca-Cola of the system. Indeed, because ether acts as a decent (if volatile) currency, one can engage in smart contracting that attempts to mimic paper-age agreements for insurance, 53 See, e.g., AXA Beta, About Us, Fizzy, [
EG6J-EHQT] (last visited Jan. 26, 2019) (describing an Ethereum-based flight insurance system).
escrow, 54 See, e.g., LocalEthereum, How Our Escrow Smart Contract Works, LocalEthereum’s Blog (Oct. 26, 2017), []. or even something akin to corporate formation. 55 Attempt is a key word here: The leading example of a quasi-corporate form on the Ethereum blockchain was a smart contract known as “the DAO,” which failed spectacularly. See Rodrigues, Law and the Blockchain, supra note 16, at 697–708 (“The 2016 DAO is a cautionary tale about the limits of relying on a ‘code is law’ model when (as inevitably happens) gaps in the nexus of contracts emerge without a legal intervention point on which the law can work.”).

To build increasingly complex and interoperating mechanisms within Ethereum, its community has begun developing standards—“fill in the blank” templates that perform agreed-upon functions. One of those—standard “ERC-20” 56 See Fabian Vogelsteller & Vitalik Buterin, ERC-20 Token Standard, GitHub, [] (last visited Jan. 26, 2019). The acronym “ERC” means “Ethereum Request for Comment.” Chris Dannen, Introducing Ethereum and Solidity: Foundations of Cryptocurrency and Blockchain Programming for Beginners 106 (2017). The “Request for Comment” is a form of memorandum used to draft networking protocols and standards, most prominently used by the Internet Engineering Task Force in designing core internet technologies. See RFC Editor, Informational RFC 5540: 40 Years of RFCs, Internet Eng’g Task Force (Apr. 7, 2009), []. The Ethereum community has adopted this form of consensus-based standard to develop common design patterns for smart contracts. See Dannen, supra, at 111. —plays a large role in our story. It establishes a simple template to create (or “mint,” in crypto-lingo) and operate entirely new cryptoassets within the Ethereum system. This is what the description of the standard looks like in code:

Figure 1: The ERC-20 Interface 57 ERC20 Token Standard, Ethereum Wiki,
ERC20_Token_Standard [] (last updated Dec. 4, 2018). A cryptoasset that meets the ERC-20 standard contains a block of code for each of the named functions and events above. See supra note 56 and accompanying text.

Creating a new cryptoasset typically requires a minimum of approximately fifty lines of code and three decision components: the asset’s name, its ticker symbol, and the number of units—or “tokens”—to mint.

C. ICOs Hit the Bigtime

In 2014, Ethereum raised real money by selling ether to the public. 58 Ethereum sold tokens directly to the unaccredited public but did not initially enable a secondary market. See Vitalik Buterin, Launching the Ether Sale, Ethereum Blog (July 22, 2014), [] (stating, in the announcement of Ethereum’s ICO, that ether would be purchasable directly from the Ethereum website but would not immediately be usable or transferable). Some subsequent token sales have been private (sometimes called “presales”), see, e.g., Chloe Cornish & Richard Waters, Silicon Valley Investors Line Up to Back Telegram ICO, Fin. Times (Jan. 25, 2018), (on file with the Columbia Law Review), but the archetypal version is public—democratized, in the tradition of Kickstarter and other “peer-to-peer” financial platforms. See supra notes 3, 17 and accompanying text. The next major ICO was Augur, which concluded in October 2015. 59 See Augur: Welcome to the Future of Forecasting, ICObench, [] (last visited Jan. 26, 2019). Between the Ethereum ICO, which concluded in September 2014, and the Augur ICO, which concluded in October 2015, there were several small ICOs that raised under $2 million. See, e.g., ICOs and Crowdsales: Over $270 Million Raised and Counting, Smith & Crown (Dec. 1, 2016), []. The market grew slowly until 2017, when it hit the gas.

Figure 2: Number of ICOs by Month 60 This chart was prepared to illustrate general monthly trends in the number of ICOs launched during the period between January 1, 2016, and December 31, 2018. The data underlying this chart—which excludes the DAO ICO in 2016—were collected from as of December 31, 2018. Since December 31, 2018, has made some minor classification and presentation changes to this data. These classification and presentation changes have resulted in deviations of less than 1% (on a total basis) from the data presented graphically herein. This holds for both the number of ICOs in the last three years (Figure 2) and the total amounts raised by ICOs in the last three years (Figure 3). For the most current data available from, see Crypto Token Sales Market Statistics, CoinSchedule, [https://] (last visited Feb. 16, 2019).

Figure 3: Total Raised in the ICO Market by Month 61 This chart was prepared to illustrate general monthly trends in the total funds raised by ICOs launched during the period between January 1, 2016, and December 31, 2018. For further discussion of how this data set was obtained, see supra note 60. The spike in March 2018 represents when the EOS raise was realized in the dataset, though it occurred continuously before then.

As the ICO market exploded so too did regulatory interest in its activities. 62 See Alex Sunnarborg, The Incoming Wave of ICO Regulation (Yes, It’s Coming), Coindesk (Nov. 2, 2018), []. Such scrutiny is no surprise: ICOs, like many internet-based phenomena before them, intentionally take place at the regulatory perimeter. 63 See Elizabeth Pollman & Jordan M. Barry, Regulatory Entrepreneurship, 90 S. Cal. L. Rev. 383, 392–97 (2017) (defining “regulatory entrepreneurship” as a business activity in which legal uncertainty regarding a core aspect of the business necessitates that the business attempt to change or shape the law, and noting that “[r]egulatory entrepreneurship often happens when businesses are built upon new technology”); Tim Wu, Strategic Law Avoidance Using the Internet: A Short History, 90 S. Cal. L. Rev. Postscript 7, 7 (2017), [
P6JS-KTK7] (stating that tech-sector entrepreneurs, starting in the late 1990s and continuing to the present, have recognized “that the Internet might provide profitable opportunities at the edges of the legal system”).
They exploit a basic tension between the cross-jurisdictional and pseudonymous aspects of cryptocurrency transactions on the one hand and the objectives of regulators on the other. 64 See, e.g., Sean Foley, Jonathan R. Karlsen & Tālis J. Putniņš, Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed Through Cryptocurrencies?, 33 Rev. Fin. Stud. (forthcoming 2019) (on file with the Columbia Law Review) (finding that approximately one half of bitcoin transactions are associated with illicit activity). Unsurprisingly, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) is using its authority to combat money laundering and criminal activity involving cryptoassets. See Letter from Drew Maloney, Assistant Sec’y for Legislative Affairs, U.S. Dep’t of the Treasury, to the Honorable Ron Wyden, Ranking Member, U.S. Senate Comm. on Fin. 1 (Feb. 13, 2018), [] (stating that “[c]ombating the abuse of existing and emerging payment systems by illicit financiers”—including various cryptoasset-based systems—“is a priority issue for FinCEN”). The question of just how significant the demand is for cryptoassets among money launderers and tax evaders is not one we answer here, but it sits as a backdrop to the inquiry that follows.

In the traditional IPO context, the Securities and Exchange Commission (SEC) and state securities regulators oversee issuer activity from soup to nuts. 65 See What We Do, SEC, [https://] (last visited Jan. 27, 2019).
They mandate registration of securities issuances, require pages and pages of disclosures over the life cycle of a security, restrict the trading activities of various parties, and possess myriad investigation and enforcement powers to effectuate their portfolio of laws and regulations. 66 See id. As of 2018, no similarly clear regime was in place for ICOs. 67 However, SEC Chairman Jay Clayton has suggested that “tokens and offerings that feature and market the potential for profits based on the entrepreneurial or managerial efforts of others contain the hallmarks of a security under U.S. law.” Initial Coin Offerings (ICOs), SEC, [] (last updated Feb. 22, 2019); see also Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, Exchange Act Release No. 81207, 2017 WL 7184670, at *1 (July 25, 2017) [hereinafter Report of the DAO] (“[T]he Commission has determined that DAO Tokens are securities under the Securities Act of 1933 (‘Securities Act’) and the Securities Exchange Act of 1934 (‘Exchange Act’).”). In lieu of the heavily lawyered products of IPO documentation, the ICO market agreed upon a less formal document known as a “whitepaper.” 68 See Barsan, supra note 16, at 54 (“Every ICO starts with a whitepaper, very similar to a prospectus, that describes the project and the rights given to investors.”).

Like governmental and nonprofit whitepapers that seek to exemplify authoritative subject mastery while gesturing toward collaborative openness, cryptoasset whitepapers are public documents that describe promoters’ plans for development and solicit community involvement. 69 Appendix C contains several examples of language obtained from these whitepapers. See Shaanan Cohney, David Hoffman, Jeremy Sklaroff & David Wishnick, Coin-Operated Capitalism—Appendix C: Individual ICO Claims (Apr. 2019),
content/coin-operated-capitalism-appendix-c/   (on file with the Columbia Law Review) [hereinafter Appendix C].
Authoritative copies are typically available in PDF form on promoters’ websites and are provided through listing services like 70 See id. This makes whitepapers a transparent form of investor information but obviates the need for outside vetting before they go live.

The legal status of whitepapers (and accompanying tweets, Medium posts, Reddit comments, and social media buzz) is unclear at best. Sometimes, whitepapers refer to—and embed—contractual terms and conditions of sale. 71 See id. In such cases, they provide information about product attributes, which would function as contractual warranties. In other cases, they resolutely speak in future tenses, offering difficult-to-parse details about what is promised and what is merely aspirational. 72 See id. Absent clearly communicated and defined offers, it is unlikely that buying a token in reliance on such documents constitutes a traditional contract, though other regimes of consumer protection law (state consumer Unlawful Trade Practices statutes, false advertising, securities laws) might fill the regulatory gap.

Beyond the informational environment, ICO issuances also differ from IPO issuances in terms of where they are traded. While public equities trade on established secondary markets like the NYSE or NASDAQ, cryptoassets trade on hundreds of upstart markets, sometimes under light-to-nonexistent regulation. 73 See Steven Russolillo & Eun-Young Jeong, Cryptocurrency Exchanges Are Getting Hacked Because It’s Easy, Wall St. J. (July 18, 2018), (on file with the Columbia Law Review) (noting that “[r]egulatory gaps” create conditions for widespread hacking); Kai Sedgwick, The Number of Cryptocurrency Exchanges Has Exploded, (Apr. 11, 2018), [] (documenting over 500 exchanges). They are located in diverse jurisdictions and have been embroiled in a range of legal controversies. 74 See, e.g., Matthew Leising, U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether, Bloomberg (Jan. 30, 2018), (on file with the Columbia Law Review); Kosaku Narioka, Court Blocks Payday for Chief of Bankrupt Mt. Gox Bitcoin Exchange, Wall St. J. (June 25, 2018), (on file with the Columbia Law Review).

Despite these significant divergences between IPOs and ICOs, the near-identical nomenclature is no mistake. Both entail the issuance of assets whose value depends on the success of a business venture, and both are offered to so-called “retail” investors. These essential similarities in economic function have not been lost on federal securities regulators in the United States, who lately have begun to apply the wonderfully medium-agnostic securities laws to regulate ICOs. 75 At first, the SEC moved gingerly in response to the novelty of the ICO form, leaving open the question of whether cryptoassets fell into a bona fide statutory and regulatory gap. Cf. Eric Biber, Sarah E. Light, J.B. Ruhl & James Saltzman, Regulating Business Innovation as Policy Disruption: From the Model T to Airbnb, 70 Vand. L. Rev. 1561, 1583–84 (2017) (describing the business strategy of exploiting gaps in existing law as “policy disruption”). In 2017, the SEC took a number of public actions concerning ICOs that began answering the question. See, e.g., In re Munchee Inc., Securities Act Release No. 10445 (Dec. 11, 2017), []; Report of the DAO, supra note 67; Complaint at 5–7, SEC v. Plexcorps, No. 17-CV-7007 (E.D.N.Y. Dec. 14, 2017), 2017 U.S. Dist. LEXIS 206145. Prominently, in early 2018, Commissioner Clayton used his bully pulpit to state that “many promoters of ICOs and cryptocurrencies are not complying with our securities laws.” See Jean Eaglesham & Paul Vigna, Cryptocurrency Firms Targeted in SEC Probe, Wall St. J. (Feb. 28, 2018), (on file with the Columbia Law Review). A number of state regulators are also actively policing bad actors in the ICO market. 76 See State and Provincial Securities Regulators Conduct Coordinated International Crypto Crackdown, N. Am. Sec. Admin. Ass’n (May 21, 2018),
45121/state-and-provincial-securities-regulators-conduct-coordinated-international-crypto-crackdown-2/ [].

Assuming the ICO market matures, these outlier-policing activities will likely be augmented with broader regulatory schemes aimed at standardizing disclosures for the mine run of ICOs. 77 See, e.g., Shlomit Azgar-Tromoer, Crypto Securities: On the Risks of Investments in Blockchain-Based Assets and the Dilemmas of Securities Regulation, 68 Am. U. L. Rev. 69, 104–11 (2018) (“[I]nformational asymmetries in the blockchain territory may warrant securities regulation.”); Rohr & Wright, supra note 18, at 97 (calling upon the SEC to establish a regulatory framework that addresses fraud prevention, investor protection, and capital formation). For that effort to be successful, it is imperative for policymakers to understand the contours of ICO transactions, and the institutional environment in which they take place, in detail. We turn to offering such detail now.

II. Smart Contracts in the Wild

This Part seeks to better understand some of the basic economics of cryptoassets, and the roles that code—specifically, smart contracts—might be playing. The central relationship we investigate is that between “paper” and “code.” 78 For the purposes of this Article, “paper” refers to the prose-bound texts of traditional agreements, offering materials, and promotional copy that accompany ICOs. These documents live mainly on the internet, but resemble their physical-paper predecessors in form. Conversely, “code” refers to the blockchains and associated smart contracts that govern the cryptoassets sold through ICOs. Ever since the cryptogra­pher (and law graduate) Nick Szabo first introduced the concept of smart contracts, their artisans have sought to use code to replace and augment traditional institutions for ensuring performance within transactional relationships. The utopian ideal is a “grand merger of law and computer security,” 79 Szabo, supra note 6. which might render the protections offered by the former to be at best superfluous. 80 Id.

That hope is emphatically present in some of the offering and promotional materials that crypto investors receive. These materials speak of sales where smart contracts will “stop accepting commitments at 888,888ETH hard cap,” 81 Monaco, Whitepaper, Crypto Rating 8,
monaco-whitepaper.pdf [] (last visited Feb. 4, 2019).
of automated destruction of excess cryptoasset supply, 82 Monetha, Whitepaper 35–36 (2017), []. and of “Reserve Tokens . . . locked in a smart contract” according to predetermined specifications. 83 Monaco, supra note 81, at 11. They promise with precision that “new founders’ tokens [are] distributed pursuant to the launch of an EOSIO Platform in a smart contract and [that the default EOSIO Software configuration] releases 100,000,000 of such tokens . . . linearly to every second over a period of 10 years.” 84 Frequently Asked Questions, EOS, (on file with the Columbia Law Review) (last visited Feb. 4, 2019). While markets of unsophisticated investors typically require investor protection laws and intermediaries to protect against market manipulation, 85 See, e.g., 1 Louis Loss, Joel Seligman & Troy Paredes, Fundamentals of Securities Regulation 4 (7th ed. 2018). the “crypto industry” has “greater transparency, fewer middle men . . . [and] programmatically enforceable contracts.” 86 Powell, supra note 34. That is, this community tries to make concrete the ideological project of using code to replace the rules of entity governance that law currently creates.

Practical realities also motivate a turn to code in this space. Even if the paper surrounding ICOs created legally binding obligations—which it sometimes will not 87 See supra text accompanying notes 34–36, 64–77. —legal rights are only as valuable as their practical enforceability. 88 But see Cass R. Sunstein, On the Expressive Function of Law, 144 U. Pa. L. Rev. 2021, 2032 (1996) (discussing cases “when the relevant law announces or signals a change in social norms unaccompanied by much in the way of enforcement activity”); Tess Wilkinson-Ryan & David A. Hoffman, The Common Sense of Contract Formation, 67 Stan. L. Rev. 1269, 1300 (2015) (“In these studies, we found not only that subjects’ intuitions about contract formation diverge from the legal rules, but that commitment to promissory obligations is more deeply entrenched than mere legal enforceability.”). Because cryptoassets can move freely and pseudonymously through the internet, it can be difficult to pin them down to particular jurisdictions. 89 See, e.g., Receiver’s Initial Status Report for Receivership Estate of Arisebank at 3–7, SEC v. Arisebank, No. 3:18-cv-0186-M (N.D. Tex. Feb. 26, 2018), ECF No. 53 (detailing a receiver’s difficulties in recovering cryptoassets). And the promoters of many ICOs have set up shop in ways that make it challenging for U.S. courts and regulators to reach their assets. 90 See id.; see also SEC Office of Investor Educ. & Advocacy, SEC Pub. No. 153, Investor Alert: Ponzi Schemes and Virtual Currency (2013),
ia_virtualcurrencies.pdf []; David Z. Morris, The Rise of Cryptocurrency Ponzi Schemes, Atlantic (May 31, 2017),
technology/archive/2017/05/cryptocurrency-ponzi-schemes/528624/ [].
Thus, promises that are made in marketing documents and terms and conditions of sale, even if legally binding, might lack an easy and practical form of legal remedy.

Given this background, an ICO that promises particular, encodable governance terms but does not encode them is not delivering on an archetypal feature of this financial form. According to those who argue the form is novel—so novel as to deny the need for wise intermediaries, venture capitalist (VC) vetters, and regulators with teeth—it is the immutable, transparent code that enables (and creates) a trustless but trusted market. 91 See Kemane Ba, Konduktum – SMT Proposal /Tackling Copyrights/ Voting for “Proof of Authorship,” Steemit (Jan. 28, 2018),
konduktum-smt-proposal-tackling-copyrights-voting-for-proof-of-authorship [
P7DD-H6G9]; cf. Timothy C. May, The Crypto Anarchist Manifesto,, [] (last visited Feb. 16, 2019) (arguing that “cryptographic protocols” will provide “nearly perfect assurance against tampering” in the new world of crypto anarchy).
With that foundational, code-centered principle in mind, we ask the classic question that motivates so much of the law of finance and corporate governance: How can investors turn over productive control of their money to entrepreneurs while also protecting themselves against exploitation?

This is a timeworn problem. In the old-growth public markets, investors can rely on disclosure regimes (imperfectly backed by public agency enforcement) and fiduciary rules (imperfectly backed by court enforcement) to manage risk. In private firms—ranging from family-owned businesses to VC-backed startups—contracts must generally suffice. What is new here (if anything) is that the cryptoasset community proposes a technological solution—the token’s coded rules—to manage some crucial sources of agency cost. 92 For an agency-costs model of the choice between VC and ICO forms, see Chod and Lyandres, supra note 33, at 14–24.

One type of bargained-for protection is a constraint on the supply of the investment asset for sale. In the traditional corporate context, each share sold to investors provides a legal right to a piece of an enterprise’s residual assets. In an efficient market, changes to the number of outstanding shares would affect share price but not firm value. 93 See, e.g., Paul Asquith & David W. Mullins, Jr., Equity Issues and Offering Dilution, 15 J. Fin. Econ. 61, 62 (1986) (“Thus with close substitutes, efficient capital markets and fixed investment policies, the price of any firm’s shares should be independent of the number of shares the firm, or any shareholder, chooses to sell.”). Put another way, the enterprise’s assets are like a pie, and every newly issued share makes each slice smaller. Because they want big pieces, early shareholders seek protection against late-breaking stock issuance. 94 See, e.g., Steven N. Kaplan & Per Strömberg, Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts, 70 Rev. Econ. Stud. 281, 291–92 (2003). Traditional corporations act through human agents; those humans are only able to issue as many shares as the corporation’s (amendable) Articles of Incorporation allow. 95 See, e.g., Del. Code tit. 8, § 157 (2019). Exploitative issuances are deterred by the common law of fiduciary duty. 96 See, e.g., In re Tri-Star Pictures, Inc., 634 A.2d 319, 328 (Del. 1993).

Supply constraints matter to cryptoasset investors, as well. Remember, tokens are not typically claims on the enterprise’s residual assets. 97 See supra note 27 and accompanying text. Rather, they normally provide investors the right to use or govern the actual system whose hypothesized construction is funded by their money. 98 See supra text accompanying notes 28–29. Shareholders in Coca-Cola care about the value of their residual claims on Coca-Cola, Inc.’s assets. But the holders of Colacoin care about the demand for, and supply of, use-rights to the future system. The number of use-rights available—in other words, the “money supply” of circulating tokens—is thus a central determinant of individual token price. 99 The supply of tokens might affect a project in other ways, as well. A project with too few circulating tokens might unnecessarily limit scalability, thereby depressing project value. This makes the price function for tokens multimodal, a dynamic not present in pricing shares of stock. The value of a token, like the value of a stock, can be diluted through new issuance. Just as our Colacoin owners hope that legions of thirsty people demand vending-machine cola, they also pray that Coca-Cola will not engage in rampant inflation of the token supply. Similarly if Coca-Cola promises to remove tokens from circulation (so-called ‘burning’), Colacoin owners would expect the value of their investment to rise.

ICOs, unlike corporations, are not birthed through the filing of Articles of Incorporation that limit stock issuance. There is no analog to the fiduciary rules, or the Delaware Chancery Court, that govern when dilution can occur. Cryptoassets are instead created, limited, and used up according to code controlling the contents of a blockchain. 100 See generally De Filippi & Wright, supra note 24. Thus, a purchaser’s protection against wanton inflation of supply comes directly from the cryptoasset code. 101 As one group of commentators notes, the Bitcoin blockchain “can be understood as the first widely adopted mechanism to provide absolute scarcity of a money supply.” Böhme et al., supra note 38, at 215. That is not to say that ICO promoters might not also make soft-law promises about supply—in fact, they often do, and such promises likely bear on value. 102 Bourveau et al., supra note 26, at 19 (using whitepaper promises of soft cap to predict an increase in price). But when such promises are not manifest in the code, investors’ ability to enforce constraints will be limited to their very uncertain ability to sue and recover founders’ assets. Because ICO project founders can do business entirely over the internet, they may be hard to find and sue. Further, it remains to be seen which causes of action might be successfully pursued in the ICO context. 103 See infra note 185 and accompanying text.

A second bargained-for protection has to do with the threat that key members of the entrepreneurial team will walk away from the project. Investors generally protect against desertion (and motivate exertion) through a set of carrots and sticks offered to managers. They incentivize them with equity options—rights that enable managers to share in the firms’ future profits—but condition those options’ exercise on contractual conditions, in other words, vesting. 104 We appreciate that token vesting is different from the traditional equity mode and that a more precise term might be “lock-up.” We follow the nascent industry terminology for clarity. See, e.g., Dana Edwards, Criteria for Determining Fair Distribution in an ICO: The Importance of Vesting to Align Incentives, Steemit (2017), []. Option, lock-up, and vesting rules attempt to align managers’ incentives with those of the firm and are endemic in the early-stage VC financing world. 105 See, e.g., Kaplan & Strömberg, supra note 94, at 292 (“VC financings commonly utilize both founder vesting and non-compete clauses.”)

In ICOs, classic options are quite rare, but token-vesting promises are common. 106 We did not observe any of the tokens in our sample using an options mechanism. Anecdotally, we are only aware of one project that has used options to facilitate development: Ripple. See Anna Irrera, U.S. Blockchain Startups R3 and Ripple in Legal Battle, Reuters (Sept. 8, 2017), []. Perhaps one reason that options mechanisms are underrepresented is that appropriate strike prices are hard to determine for tokens. See Editorial Team, CryptoCurrency Options—An Alternative Way to Trade Crypto, CoinBureau (Aug. 22, 2018), [] (detailing the volatility of Bitcoin’s strike prices). As one project (marketing its vesting promises) wrote, it “is a governance practice designed to ensure long-term alignment of interests and is standard for any serious project.” 107 Bancor, Bancor Network Token (BNT) Contribution & Token Allocation Terms, Medium (June 5, 2017), []. Another wrote that “[v]esting is a must. There are no excuses not to do it. It aligns everyone’s incentives and ensures that no founder dumps happen.” 108 Luis Cuende, Aragon Network Token Sale Terms: Founder Vesting, Simple Pricing and Distribution, Aragon One Blog (Apr. 21, 2017),
aragon-network-token-sale-terms-8998f63a3429 [].

As with promises regarding supply, vesting promises that are coded are enforced automatically. 109 See supra note 6 and accompanying text. Those merely present in marketing materials or paper contracts are less likely to be enforceable. 110 As an example, consider NaPoleonX, which changed its vesting mechanism from six months to a series of four distribution periods halfway through its ICO process. See Stéphane Ifrah, NaPoleonX Newsletter, NaPoleonX, [] (last visited Feb. 4, 2019). Uncoded vesting promises might (or might not) be present in governing documents of the underlying formal organizations. They likely would be located in the employment contracts of the various managers and founders, but such contracts probably will not be publicly verifiable.

Perhaps to allay this very concern, ICOs often make claims about their smart contract vesting. For instance, one promises that:

20% of the BMCs will be allocated to the founding Blackmoon Crypto team and advisors, locked in a smart contract with a 24-month vesting period, and six-month cliff. These BMCs won’t be immediately tradable and will secure the core team members by ensuring their motivation after the Distribution Period. 111 Blockchain Paper, Black Moon Investment Analysis: Blackmoon Crypto, Medium (Sept. 7, 2017), [https://].

Because promoters focus on it so much, examining how and whether vesting promises are coded sheds light on how strongly investors should buy the claim that a project’s key people will not exit with their newly raised capital. 112 The story of a project called Matchpool demonstrates how the absence of coded vesting rules can result in mischief. Within days of a reported $5.7 million ICO, one founder departed from the project and wrote that his cofounder, the CEO, had withdrawn 37,500 ether from the wallet without explanation. See Nick Tomaino (@NTmoney), Twitter (Apr. 5, 2017), []. That is not to say that failing to code vesting means that founders are about to abscond: Coded vesting rules are only one way to protect against looting. However, it is a way that is technically feasible and consonant with the industry’s ideological claim that law is a poor substitute for code.

A third and final protection against exploitation in ICOland is the supposition that the initial rights investors receive are not modifiable. Part of the appeal of cryptoassets and smart contracts that operate on blockchains hinges on their “immutable” nature. Legal contracts contain ambiguity and permit formal and informal modifications, but smart contracts are purportedly drafted in exhaustive, precise code that seems to set the parties’ obligations permanently. 113 See Sklaroff, supra note 49, at 291. Because cryptoassets are defined by smart contracts, whether those smart contracts are modifiable should profoundly impact price and receive intense investor scrutiny. 114 In fact, to the extent that investors are told to focus on code, they are explicitly warned that it will be immutable. See, e.g., Catalin Cimpanu, Researchers: Last Year’s ICOs Had Five Security Vulnerabilities on Average, Bleeping Comput. (June 25, 2018), https://
on-average/ [] (“Once an ICO starts, the contract cannot be changed and is open to everyone, meaning anyone can view it and look for flaws.” (internal quotation marks omitted) (quoting Positive ICO, ICO Projects Contain Five Security Vulnerabilities on Average, Blog (June 25, 2018), [])).

A fully disclosed regime that permitted a token to be modifiable should have uncertain effects on value. On the one hand, no social enterprise existing over any medium-length time period can have functioning governance rules immutably fixed at its inception. Human relations, including financial ones, evolve. Imagine a constitution that could never be amended, or a similar corporate charter. 115 Cf. Henry Hansmann, Corporation and Contract, 8 Am. L. & Econ. Rev. 1, 2 (2006) (suggesting that corporations adopt state-law default terms for their charters in order to delegate a long-term amendment power to their states of incorporation). Thus, investors told that every rule of a token ecosystem had been irrevocably fixed at their creation should (we think) recoil at the coders’ hubris. 116 See Sklaroff, supra note 49, at 300 (providing instances of that hubris meeting its just reward). On the other hand, when one party holds the power to modify formal relations, other parties bear risk. To the extent that a smart contract defining investors’ rights is mutable at the will of the issuer, investors ought to expect that the limits of that process would be explained in detail. Consider a fully modifiable Colacoin, for instance. One day the issuer might say that your coin, which you thought bought you a right to delicious fizzy soda, could only be used to purchase noncarbonated beverages or could be used to purchase cola only when you inserted additional fiat currency. 117 There are parallels between freely modifiable tokens and blank check stock, which gave rise to significant concerns immediately before the SEC was chartered. See generally Harwell Wells, A Long View of Shareholder Power: From the Antebellum Corporation to the Twenty-First Century, 67 Fla. L. Rev. 1033, 1071 (2015) (discussing Adolf A. Berle Jr. & Gardiner C. Means’ historic critique of “blank check stock” for permitting board entrenchment). The “rights” you bought would be notional.

Surprisingly, until July 2018, the crypto industry rarely discussed modification. 118 Earlier discussions did exist but were limited to blog posts and commentary outside of the mainstream. See, e.g., Alan Lu, Solidity DelegateProxy Contracts, Gnosis (May 17, 2018), [] (“Proxies can enable contract logic to be updatable as well, so additional business requirements may be implemented after the initial deployment. Of course, this is a tradeoff: contract users would have to trust that the contract owner updates the contract in a way that does not violate user expectations.”). That month, in response to a hack of a popular token, a handful of prominent cryptocurrency voices sounded the alarm that several circulating tokens were modifiable at will. 119 See Jackson Palmer (@ummjackson), Twitter (July 9, 2018),
ummjackson/status/1016455890294091776 [] (identifying that some tokens “include an ‘upgrade’ capability which also allows them to essentially upgrade/replace the token contract” and others allow token creators have the “to completely and centrally pause transfers”).
They were, to summarize a long Twitter thread, angry. This is not conclusive evidence that modifiability is seen as a negative characteristic of tokens, but it does suggest that the coded ability to modify a token is not an anodyne fact. In short: We would expect that if token code is explicitly modifiable, that fact would be disclosed. Similarly, if the token code’s governance provisions are not modifiable, we would expect that the marketing documents would explain how, and why, the project can evolve with the times.

With  these  three  investor-protection  ideas  in  hand,   we  now  will  provide  examples  of  how  they  are  actually  accomplished  in  the  real  world.  We focus  our  discussion  on  Ethereum  code.   Ethereum nodes  operate  a  simulated  computer  called  the  “Ethereum  Virtual  Machine”  (EVM). 120 What Is Ethereum?, Ethereum Homestead Documentation,
en/latest/introduction/what-is-ethereum.html [] (last visited Jan. 26, 2019).
This simulation runs by using both data and code (smart contracts) stored on the Ethereum ledger. 121 Id. The smart contracts exist on the Ethereum ledger in a complex, hard-to-read machine language known as bytecode. 122 See Bernard Peh, Solidity Bytecode and Opcode Basics, Medium (Sept. 15, 2017), []. But they are most commonly written in an intuitive program­ming language called Solidity. 123 See id. (“Like many other popular programming languages, Solidity is a high level programming language.”). Solidity hides the internal details of the EVM and the complex machine language that it processes. 124 Id. Before being uploaded to the blockchain, a program called a compiler is used to translate the Solidity source code into Ethereum bytecode. 125 Id. This Article presents examples in Solidity.

Solidity code contains four major types of entities: variables, functions, events, and modifiers. 126 Structure of a Contract, Solidity,
structure-of-a-contract.html [] (last visited Jan. 26, 2019).

  • Variables are the data-storage components of any smart contract and, in the case of a token’s smart contract, store balances for each user-address, along with other data required for the smart contract to operate. 127 Id.
  • Functions describe the rules by which the smart contract operates, storing discrete chunks of code that perform specific 128 Id. Functions are executed (or “called”) by sending a specially formatted transaction to the Ethereum network. 129 Id. Functions are identified by a name and a set of parameters (or “arguments”) that are the inputs to the function. 130 Id.
  • Events are signals that a smart contract sends to other applications or smart contracts programmed to receive them. 131 Id. They act as a form of logging. 132 See Contracts, Solidity, [] (last visited Jan. 26, 2019) (“Solidity events give an abstraction on top of the EVM’s logging”).
  • Modifiers allow a developer to easily restrict the execution of a function under certain conditions. 133 Id. For example, a developer may restrict the ability to mint new tokens to the smart contract owner alone. 134 See id.


Figure 4: An Example Code Snippet 135 The code snippet shows a fictional “addFunds” function that adds funds to the sender’s account balance. The code can only be executed by the contract owner, as indicated by the “function modifier.” To execute the function, a user must supply two parameters: (1) the address of the sender and (2) the amount by which to increase the account balance—these are commonly known as “arguments.” The operator “+=” then adds the variable “amount” to the variable “accountBalance[sender]” and then saves that new value as the variable “accountBalance[sender].”

To audit a given cryptoasset, we obtain a copy of the Solidity code (illustrated above), either from, where developers commonly upload their smart contract’s Solidity code, or from GitHub, a source code repository often used as part of the development process. replicates the bytecode present on the blockchain but requires developers to upload Solidity source code for display. 136 See Contract Verification – Constructor Arguments, Etherscan Support Ctr.,
constructor-arguments [] (last updated Nov. 21, 2017); What Is Etherscan?, Etherscan Support Ctr.,
articles/35000022140-what-is-etherscan [] (last updated Nov. 21, 2017).
The site additionally provides a verification feature, which allows users to check that the Solidity code matches the bytecode. 137 See Contract Verification – Constructor Arguments, supra note 136. In a few cases, Etherscan did not affirmatively indicate that the uploaded display code matched the bytecode. In those cases, we did not separately verify the match.

After obtaining source code, we then examine each function of a smart contract and manually track the role each line plays. We use code comments—explanatory lines of human-language text inserted by developers, which have no computational function—as guides to assist in identifying developers’ intentions. 138 Importantly, our assessment does not constitute a security audit, nor does it guarantee the correctness of the code. It merely seeks to ascertain the intended purpose of the various contract components. We leave analyzing the correctness of ICO smart contracts to others. Source code can be examined along a number of axes, among them syntax, semantics, and correctness. Syntax refers to the symbolic representation of the code—the particular sequence of words and numbers that comprise code. See Richard Paige, Foundations of Tree- and Graph-Based Abstract Syntax in Software Languages: Syntax, Semantics, and Metaprogramming 87, 87 (Ralf Lämmel ed., 2018). In our case, this is the set of rules governing the Solidity language. At a higher level of abstraction, the semantics of code refers to the actual meaning or functionality of a program. Isabelle Attali, A Primer on Operational Semantics in Software Languages: Syntax, Semantics, and Metaprogramming, supra, at 241, 241. Therefore, two pieces of code written in different programming languages can have the same semantics, while differing in syntax. As a result, semantics is the level at which we attempt to audit the code. A typical smart contract in our sample contains between five hundred and one thousand lines of code. We inspect that code, looking for the presence of our three investor-protection attributes.

A. Supply Promises

1. Minting. — Cryptoassets issued via ICOs are created through a process known as minting. 139 See David Hoffman, Penn Wharton Pub. Policy Initiative, Regulating Initial Coin Offerings (ICOs) 2 n.2 (2018), []. An alternative process, known as mining, is often used to create cryptoassets, but not for ICOs. See Böhme et al., supra note 38, at 222 (“[B]itcoins are created when a miner successfully solves a mathematical puzzle.”). In mining, suppliers of computational power receive cryptoassets in exchange for performing network-critical functions for the blockchains housing the cryptoassets. Id. at 218. Bitcoin provides an archetypal example of mining. Id. Bitcoin miners devote processing power to the blockchain, using their computers to solve complex math problems that help verify transactions. Id. The first miner to discover a valid solution can lay claim to the newly mined bitcoin. Id. For further details, see id. at 215–18. Recall that the Ethereum blockchain provides an extremely simple way to mint new cryptoassets through the ERC-20 standard. 140 See Hoffman, supra note 139, at 2; see also supra text accompanying notes 55–58. Using instructions found online, we were able to mint our own cryptoasset in twenty minutes. See maxnachamkin, How to Create Your Own Ethereum Token in an Hour (ERC20 + Verified), Steemit (July 10, 2017), []. But even if they do not conform to the ERC-20 standard, minted assets are typically created by executing relatively simple code on a blockchain. 141 This is not a necessary attribute of minted assets. For a summary of the smart contract code audited, see infra notes 594 –645.

In other words, a minted cryptoasset is created through an act of founder fiat. Billions or trillions of cryptoasset tokens are generated at a nominal cost reflecting fees paid to interact with the respective blockchain. 142 In our sample, some teams minted the full supply of their cryptoasset instantaneously. Others chose a dynamic supply model, in which supply grew proportionately to the amount of investment received. Then the team will typically commence an ICO, transferring the tokens to investors in private sales or to members of the general public in mass offerings. The sales are accomplished using smart contracts, automatically routing the project’s tokens to investors in exchange for other cryptoassets or, more rarely, for fiat currency.

Minting is an essential part of the ICO story. It creates the opportunity for early-stage blockchain projects to rapidly raise capital without the formalities required by corporate law and regulation. But it also opens the door to fraudsters, who can mint and sell tokens based on the expectation of a given supply schedule, only to mint more than expected—or to mint a special stash for themselves.

To understand minting, let’s examine an ICO for a cryptoasset called Kin (ticker symbol: KIN), orchestrated by a company called Kik Interactive (“Kik”). Kik runs a global messaging platform with approximately 300 million registered users. 143 Lucas Matney, Kik Already Has Over 6,000 Bots Reaching 300 Million Registered Users, TechCrunch (May 11, 2016), []. Like other digital communications companies, it has sought to broaden its business model by turning to blockchain. 144 Kik Interactive, Inc., Kin: A Decentralized Ecosystem of Digital Services for Daily Life 3 (2017), [] [hereinafter Kik Interactive, Kin: A Decentralized Ecosystem] (advocating for the adoption of blockchain-based networks to facilitate digital ecosystems in order “to realize Kik’s vision of a sustainable future in online communication and commerce”). Ultimately the company would like to build a “decentralized ecosystem of digital services for daily life.” 145 Id.

If all goes according to plan, Kin will be the currency enabling and constituting this utopian ecosystem. 146 See id. at 23 (“Kin will bring to fruition a new era of decentralized community ownership, enabling a vibrant ecosystem of digital services that power daily life.”). Building on Kik’s previous efforts to develop in-app loyalty points, Kin is meant to serve as a “transaction currency” that Kik users can exchange for premium features, like membership in “VIP” chat groups with celebrities. 147 Id. at 5, 13–15. Other proposed premium features include the ability to publish messages with special visual features or to broadcast “shoutout” messages to large groups. Id. It will also incentivize developers to work alongside the project. 148 See id. at 5–6, 19 (describing how a “Kin Rewards Engine” will “create natural incentives for digital service providers to adopt Kin and become partners in the ecosystem”).

According to its whitepaper, Kik planned to mint ten trillion Kin tokens, of which one trillion would be put up for sale. 149 Id. at 21. A blog post from Kik’s founder and CEO states that 488 billion were sold for $50 million in a presale arranged with specific investors and venture capital funds active in the industry. 150 Ted Livingston, Kin TDE: If You Want to Participate, You *Must* Register by September 9, 9:00 a.m. ET, Medium (Aug. 29, 2017), []; see also Khari Johnson, Kik Raises $50 Million Ahead of Token Sale for Its Cryptocurrency Kin, VentureBeat (Aug. 29, 2017),
2017/08/29/kik-raises-50-million-ahead-of-token-sale-for-its-cryptocurrency-kin/ [] (“Presale investors include Blockchain Capital, Pantera Capital, and Polychain Capital, all well-known blockchain-specific investment firms.”).
The remaining 512 billion tokens were offered to the public during the project’s ICO, which ran from September 12–26, 2017. 151 See Khari Johnson, Kik Raises $98 Million in Kin Cryptocurrency Token Sale, VentureBeat (Sept. 26, 2017), [] [hereinafter Johnson, Kik Raises $98 Million]; Kin Token Distribution Event Starts Today, Kik Blog (Sept. 12, 2017), []. Ultimately, the ICO raised $98.8 million for the project, bringing the total amount raised to almost $150 million when including the private presale. 152 See Johnson, Kik Raises $98 Million, supra note 151. Due to concerns that there would be insufficient demand to sell the entire ICO stake, Kik ended the sale eight hours earlier than initially planned, and announced that it would distribute all unsold tokens to ICO buyers on a pro-rata basis. See u/masrod, Maintaining the Kin Token Structure: Redistributing Unsold Kin, r/KinFoundation, Reddit (Sept. 24, 2017),
r/KinFoundation/comments/724xg9/maintaining_the_kin_token_structure/ [].

We audited the smart contract code to understand how these supply promises were accomplished. The cap on the number of tokens available is indeed coded in the smart contract. In addition, the smart contract mandates two discrete sale phases, and there are coded limits on how many tokens could be sold during each. One of these phases is the project’s ICO, and the other is presumably the private presale. 153 To purchase tokens, purchaser addresses must be added to a list of participants by Kin’s development team. See Livingston, supra note 150. Figure 5 illustrates the code’s function.

Figure 5: Kin Project Code 154 Kin (KIN), Contract Code, Etherscan, [] (last visited Feb. 20, 2019).

That is minting. But there are other processes that can alter supply.

2. Increasing Supply.  —  The  full  supply  of  a  minted  cryptoasset  can  be  set  at  the  outset  of  a  project, or can fluctuate depending on how much investment the project receives. 155 See supra Figure 5 (setting the max tokens in the first two lines of code). The  circulating  supply  of  the  asset  can  also  fluctuate.  For  instance,   a  founding  team  could  retain  some  of  an  initially  minted  asset supply and use it to inflate the circulating amount in the future. 156 See, e.g, Brad Garlinghouse, Ripple to Place 55 Billion XRP in Escrow to Ensure Certainty of Total XRP Supply, Ripple, [] (last visited Jan. 26, 2019) (explaining Ripple’s decision to place 55 billion XRP into a “cryptographically-secured escrow account” to secure XRP). Similarly,  a  team  might  alter  rules  governing  the  ICO  process  to  achieve  various  supply  effects. For example, the Kin ICO smart contract contains code to enforce volume restrictions for individual purchasers. 157 See supra Figure 5 (comparing weiAlreadyParticipated, the number of tokens already purchased, with participationCap, the total amount allowed to be purchased, and msg.value, which contains the requested purchase amount). Each address permitted to participate in the sales may only send a limited amount of ether to the smart contract that disburses KIN tokens. 158 See supra Figure 5 (creating a cap on ether received). However, these limits could be manually modified by the smart contract owner at any time. 159 This structure creates opportunities for the development team to temporarily increase caps and quietly notify certain favored purchasers, and then reduce the cap once the additional purchases have been made. See Kin (KIN), supra note 154 (providing several means to place participants in different tiers with different caps).

The important point here is that maximum supply of a minted cryptoasset can be specified and enforced (or not) via the code comprising the cryptoasset itself. Projects can also contain an absolute cap. But some cryptoassets lack this feature. For example, there is no absolute cap on the amount of ether that can be created. 160 See Ether, Ethereum, [] (last visited Jan. 26, 2019). Indeed, there is heated debate about whether this is a desirable feature or not. 161 See Michael Collins, Ethereum Stakeholders Consider Capping the Amount of Total Ether, Bitrates (Aug. 26, 2018), [] (discussing proposals to cap the amount of ether). Despite many attempts to impose a hard cap, there has been no progress. See Vitalik Buterin (@VitalikButerin), Twitter (Apr. 2, 2018), [
Q7SX-SBZF] (describing an April Fool’s joke proposing implementing a currency cap on ether and therefore demonstrating that there is still no cap). Note that ether supply is in some ways determined by the economics of mining, a reference to the “ice age” difficulty bomb. See Collins, supra.

Supply caps are a typical part of an ICO’s marketing materials. 162 See infra Part III & Appendix B. As one promoter said, “Even if on the last day of distribution Richard Branson shows up on a resplendent white yacht packed stern to bow with cash, we wouldn’t be able to sell him any more.” 163 See dennisk82, Polybius Bank (PLBT Tokens), Steemit (July 12, 2017), https:// [].

3. Decreasing Supply (or “Burning”). — In prototypical blockchains, cryptoassets circulate like money. Think of Colacoin: If you drop a Colacoin in a vending machine for a pop, the coin will get picked up by a Coca-Cola employee, head to the corporate vault, be used in payment for the vault guard’s salary, and then—maybe after the vault guard goes for a jog—get dropped back into another vending machine in the system. To take one example, circulation is the default rule for ether. 164 See Ethereum Whitepaper, supra note 48. When someone pays ether to complete a transaction on the Ethereum blockchain, its recipient can spend that ether right away. 165 See id.

But perpetual circulation is not always the fate of a cryptoasset. Cryptoassets also can be used up, or “burned”—that is, destroyed. 166 See Natale M. Ferrara, ‘Token Burning’ and Other Crypto Jargon Simplified, Forbes (Nov. 29, 2017), [] (“In its simplest form, burning a token means making the token permanently unspendable.”). Burning can play important roles depending on the business model envisioned by project founders. Some might advertise that the token could be exchanged for the right to access the completed project. Then, the exchanged asset would be permanently “burned” upon use. Some projects described plans to actively buy tokens from holders and then burn them, creating token price appreciation similar to a stock buyback. 167 See, e.g., FinShi Capital Crowdsale Whitepaper, FinShi Capital,
whitepaper_finshi_eng.pdf [] (last visited Jan. 26, 2019). FinShi’s whitepaper states:
FinShi Capital takes on the obligation of buying back the tokens through the fund’s profits, thus implementing dividend policy. Once the fund announces an exit from a portfolio company, there will be created a queue of investors who applied for selling their tokens back to the fund. The amount of tokens for buy-back will be announced together with the exit date. The fund will buy out the tokens within one month after the exit from a startup. After that the tokens will be destroyed.
Id. As Professor Tony Casey pointed out to us, the economics of buy-backs are interesting in that the functional result is to distribute residual profits to nonowners. Presumably, the organizers have concluded that such commitments, whether or not credible, can result in a more profitable immediate liquidity event, suggesting that they discount the possibility of long-term gains.
In others, only those tokens exchanged for certain features in the product—for example, tokens paid as fees—are burned. Finally, burning is used as a mechanism in ICOs, as a way to destroy unsold supply.

Burning on the Ethereum blockchain takes two forms. The first is a simple transfer of tokens (or ether) to the address of Ethereum’s “genesis” block, 168 Every entry (“block”) on a blockchain is linked to both the entry following it and the entry preceding it. However, this cannot apply to the first block which has no antecedent. This block, known as the “genesis block,” is created by computer code explicitly laying out the contents of the ledger entry. See Genesis Block, Bitcoin Wiki, [] (last visited Jan. 26, 2019). consisting of all zeros. As this address has no owner, the tokens cannot be spent and as such are “burned.” The second is to use an Ethereum smart contract’s function programmed with the logic to either delete the ownership record and decrement the total supply accordingly, or that which destroys the entire smart contract, rendering any tokens or ether sent to that address inaccessible. The below snippet shows a characteristic burning function.

Figure 6: Burning Code 169 The burning code checks that the user has a sufficient balance of tokens, reduces their account balance and total supply by the request amount, and notifies interested parties through the “Burn” event. See Create Your Own Crypto-Currency with Ethereum, Ethereum, [] (last visited Feb, 21, 2019).

A smart contract with appropriate code can keep track of burned tokens, enabling investors to easily audit the current supply.

Not all burning promises are executed so cleanly. Consider, for instance, Paragon, an ICO that aims to “revolutioniz[e] all things cannabis with blockchain.” 170 Paragon, Whitepaper Version 1.0, at 1 (2017), []. “All things” is not really an exaggeration; the whitepaper discusses plans to streamline operations for cannabis growers and dispensaries, purchase and operate coworking spaces for cannabis startups, and engage in widespread prolegalization advocacy. Id. The whitepaper describes a ParagonSpace, a Paragon Accelerator, an “immutable ledger for all industry related data.” Id. at 8. Of course, all of these efforts are powered by cryptoassets and smart contracts. Lest you think it’s all a smoky haze (and we promise that’s the first and last joke), the project does have a dedicated cryptoasset: an ERC-20 token called PRG. The whitepaper specifies that PRG holders will be able to interact with all of the project’s many initiatives; holders will be able to vote on real estate investments, 171 See id. at 21. guide project governance decisions, 172 See id. purchase access to coworking services, 173 See id. at 17–18. and exchange tokens for local currency in cannabis-unfriendly jurisdictions. 174 See id. at 12. Ultimately, the SEC focused on these promises when it brought a cease-and-desist action against the Paragon team for selling unregistered securities. See In re Paragon Coin, Inc., Securities Act Release No. 10574, 2018 WL 6017663, at *4 (Nov. 16, 2018) (noting that “Paragon and its agents . . . emphasized that the company would build an ‘ecosystem’ in a way that would cause PRG tokens to rise in value”). This has been one of the highest-profile enforcement actions against ICO teams; many have suggested that it was the nail in the coffin for the 2017–2018 ICO market. See Nikhilesh De, After Friday’s SEC Actions, Experts Say ICO Party ‘Is Truly Over,’ CoinDesk (Nov. 17, 2018), [] (suggesting that due to enforcement actions against Paragon and other ICO projects, “the party is truly over”).

In addition to these promises about governance, Paragon promised that any unsold tokens from the private or public sale would be burned. 175 See Paragon, supra note 170, at 14. And it describes a transaction fee system whereby “[a]ll fees on the Paragon ecosystem” incur a $0.000000005 charge (that’s five billionths of a dollar), half of which is burned and half of which replenishes the project’s PRG reserve. 176 Id. at 32. Finally, the whitepaper describes a process for stabilizing the price of PRG by selling or buying back tokens. This suggests that the team can unilaterally change the number of tokens in circulation when it deems that that there is “severe price volatility” or “excessive sell volume,” making it difficult for investors to value tokens ex ante. Id. at 31. The project does claim that Reserve Funds “cannot be . . . distributed to employees or investors,” and that insiders are restricted from trading PRG following a purchase or sale by the Fund, though there is no enforcement mechanism specified. Id.

We can perceive only a small part of this complex set of rules in the code. 177 The Paragon code repository contains what appears to be a third-party audit certification by ABDK Consulting, a blockchain services consultancy. The certificate claims that the auditors have inspected the code and “the code does not contain any major flaws that would prevent a secure and proper interaction with this contract.” Mikhail Vladimirov & Dmitry Khovratovich, ABDK, ParagonCoin Token Contract: Final Report, Github (Sept. 15, 2017), []. The auditors also noted that “the contract charges a fee . . . which should be made clear.” Id. PRG’s smart contract code does limit issuance to 200 trillion tokens. This is captured in Figure 7 below.

Figure 7: Paragon Supply Code 178 Paragon (PRG), Contract Code, Etherscan,
0x7728dFEF5aBd468669EB7f9b48A7f70a501eD29D#code [] (last visited Feb. 16, 2019).

We also verified that Paragon contains code allowing users to burn a portion of their tokens. This is captured in Figure 8 below.

Figure 8: Paragon Coin Burning Code 179 Id.

However, we modeled the transaction fee system described in the paper and discovered troubling implications for supply. Following the creation of the smart contract, each transfer of a PRG token consumes approximately one-six-billionth of the total supply in transfer fees, half of which is paid to the owner of the PRG smart contract and half of which is burned. After a sufficient number of transactions the fee approaches the number of tokens remaining in the supply, causing the eventual demise of the network. This is captured in Figure 9 below.

Figure 9: Paragon Fee Code 180 Id.

B. Vesting Promises

If supply controls protect against the threat of dilution, vesting mechanisms protect against the threat of desertion. 181 See supra note 104 and accompanying text. They work either by delaying when the founder is granted assets or deferring the moment of their liquidity. 182 See, e.g., Kin (KIN), supra note 154 (granting assets that vest periodically over different periods). A smart contract usually provides for vesting by allocating a portion of minted tokens to insiders but then locking them up until some condition is satisfied. 183 See, e.g., StatusNetwork (SNT), Contract Code, Etherscan, [] (last visited Feb. 16, 2019) (granting tokens to a holding wallet where they are collectable after they vest). The code prohibits the transfer, sale, or use of the tokens until the condition’s trip-wire is hit. 184 The team could always choose to mint new tokens not subject to the vesting condition and claim that the project will eventually accept both kinds of tokens. Most ICO-coded vesting is time-based, with few of the contractual conditions that come with stock vesting offline. 185 There are, of course, outliers. Aragon, an Ethereum-based platform for building and managing decentralized organizations, claimed that its ERC-20 tokens will provide holders with governance rights. See Aragon Network Whitepaper, Github (Aug. 28, 2018), [] (suggesting that token holders will be able to vote on issues like network upgrades, dispute resolution, monetary policy, and fiscal policy). Importantly, these governance features are only activated upon execution of a multisignature smart contract by holders instructed not to execute until the product launches. See Luis Cuende & Aragon, Introducing the Aragon Community Multisig, Aragon: Project Blog (May 15, 2017), [].
In our audit, we were unable to confirm that ANT tokens contain these latent governance rights. Rather, we discovered that governance features will be introduced through a future distribution of tokens which themselves will have the promised features.

Let’s return to Kik and examine its vesting promises. In its marketing documents, Kik made fairly specific, detailed promises about token vesting. Of the ten trillion total Kin created, Kik’s whitepaper claimed that thirty percent would be allocated to Kik in exchange for its “startup resources, technology, and a covenant to integrate with the Kin cryptocurrency and brand.” 186 Kik Interactive, Kin: A Decentralized Ecosystem, supra note 144, at 21. This stake would be subject to a vesting schedule that released ten percent every quarter, for ten quarters. 187 Id. at 21–22.

Further, sixty percent of the initial Kin was allocated to the Kin Foundation, the entity that is meant to gradually take control of the project. 188 Id. at 19. This stake vests according to its own schedule. 189 See id. at 21. These tokens are allocated to fund the Kin Rewards Engine. See supra note 148 and accompanying text. Since the number of tokens being placed in circulation decreases over time, this feature also creates inflation for the token. Kik Interactive, Kin: A Decentralized Ecosystem, supra note 144, at 22. A total of 0.061% of this stake will be released into circulation daily, or roughly twenty percent per year. 190 Kik Interactive, Inc., Kin Rewards Engine 5 (2017),
files/Kin_Rewards_Engine_RFC.pdf [] .
Kik even released a separate whitepaper detailing the vesting dynamics for the Foundation stake, specifying, for example, that the unvested portion of this stake will be around 4.6 trillion Kin on March 12, 2019. 191 4,601,252,295,287 Kin to be exact. Id. This is assuming a January 1, 2018, start date. Id.

Figure 10: Kin Allocation Code 192 Kin (KIN), supra note 154.

The project implemented some of these promises in the code. The Kin smart contract creates vesting by maintaining a database of grants with a start date, end date, cliff, and installment length. 193 See supra Figure 10. Grants are both creatable and revocable by the smart contract owner. 194 See Kin (KIN), supra note 154. No more than 100 grants may ever be created and no address may receive a grant twice. 195 See id. Every grant we have seen so far has a hardcoded cliff of one year, with two installments, one of which must be executed by the owner of the smart contract and on which is executed by the vesting trustee. 196 See id.

When the Kin ICO commenced, the developers created two new grants. One corresponds to Kik’s thirty percent stake and faithfully implements the ten percent per quarter vesting schedule described in the whitepaper. 197 See supra Figure 10. Interestingly, the development team manually added a comment to the code showing that the address owning the stake belongs to Kik. 198 See id. This suggests that Kik may have believed there would be at least some investor scrutiny over the technical governance features of its project.

The second grant corresponds to the sixty percent Foundation stake. We were unable to locate code for any of the highly detailed vesting mechanisms described in the whitepaper. We did observe that this grant is wholly controlled by the owner of a vesting trustee smart contract. Of course, offline ownership of that smart contract—the legal person within the Kin or Kik organization that actually receives the unlocked tokens—is not hardcoded into the Kin token code itself. It’s simply bestowed on whoever has the private keys for that smart contract. In other words, there’s nothing about the token code that enforces separate ownership of Kik’s stake and the Foundation’s. Instead, it depends entirely on the offline governance features of the project, enforced using traditional tools like corporate charters and bylaws (or not at all).

C. Modifiability

Beyond the specific protections against inflation of supply and desertion by key people, the promise of cryptoassets has also rested on the idea that investors are protected by the immutability of blockchain code. As we noted above, lawyers might well think of this as a wacky idea. And sure enough, immutability has indeed gone by the wayside for a number of ICO projects. Disclosure of what we refer to as “modifiability” is another matter. Though some token teams do advertise that tokens may provide new rights in the future, they do not explain that modification is a way to change any aspect of the token, not just activate valuable new features. And yet, as we will see, modification is built into the design of some ICO systems. How does this work? 199 See infra notes 200, 204–215 and accompanying text.

In the simplest setting, a developer can simply copy the contents of the data stored in a smart contract, and create a new smart contract, prepopulated with the data from the former. While those who owned tokens in the context of the original contract also own tokens in the new smart contract, the developer is free to create new code controlling the behavior of the latter. More concretely, an issuer may refuse to honor the original token when they finally complete development of the product the ICO was designed to fund.

This can be accomplished using two sets of rules: a primary smart contract with which users interact and a series of secondary smart contracts whose code is incorporated by reference. 200 See, e.g., Blackmoon Crypto Token (BMC), Contract Code, Etherscan, [
8CX2-QJ64] (last visited Feb. 16, 2019). A second approach to modification ensures the simultaneous removal of tokens from an existing contract and addition of equivalent tokens in a new contract. Users can upgrade to the new contract by manually calling a function in the old contract.
Our lawyerly audience can think of the typical relationship between a website’s Terms of Service and its Privacy Policy: The former usually contains a link to the latter, and purports to bind visitors to both. 201 See, e.g., Woodrow Hartzog, Website Design as Contract, 60 Am. U. L. Rev. 1635, 1636 (2011) (“The social networking site [Facebook] has a Terms of Use Agreement with a section titled ‘privacy.’ The agreement references Facebook’s privacy policy, a separate document.”). Or, think of a public law that points to a private standard, like a city code that adopts LEED green-building standards. 202 See Sarah B. Schindler, Following Industry’s LEED: Municipal Adoption of Private Green Building Standards, 62 Fla. L. Rev. 285, 289 (2010). The standard can be updated privately, thereby modifying the effect of public law. 203 See id. at 303–07 (describing the process by which LEED certification standards are updated). This practice is, needless to say, controversial. See Nina Mendelson, Private Control over Access to the Law: The Perplexing Federal Regulatory Use of Private Standards, 112 Mich. L. Rev. 737, 748 (2014) (“[D]ecisions to incorporate private standards into the law . . . represent a potentially injurious public message that is inconsistent with core democratic values.”); Schindler, supra note 202, at 316 (describing the advantages of standards developed in a public system, while recognizing the benefits private regulatory standards provide).

A similar “pointing” mechanism enables the modification of cryptoasset smart contracts. All tokens using this method share identical code. The primary smart contract stores for each user the address of a secondary smart contract, containing the most recent set of accepted modifications. 204 When a user executes a contract function, the primary contract checks the reference stored for the user and executes the incorporated code stored on the secondary contract. The  owner  of  the  primary  smart  contract  can  modify  the  code  by  proposing  a  new  secondary  address,   defining  the  smart  contract  whose terms  will  be  incorporated. In one example we found (Monaco), the code gave users three days to opt in or out before the modification spread. When a user opts out, her current secondary smart contract address is frozen until the next time they explicitly opt in. The default state of all users is opt in, as illustrated below. 205 Code for some tokens with modifiable contracts contained copyright notifications in the comments attributing the source to Ambisafe. See, e.g., Polybius (PLBT), Contract Code, Etherscan, [] (last visited Feb. 16, 2019).

Figure 11: Monaco Modification Code 206 This snippet illustrates the opt-in process in the Monaco contract. The user’s account balance and total supply are decreased by the requested amount, the old contract runs a function on the new contract requesting that the tokens be “transferred,” and finally, interested parties are notified via the “Upgrade” event. See Monaco (MCO), Contract Code, Etherscan, [] (last visited Feb. 16, 2019).

The Polybius project provides another example. It is a proposed “fully digital bank accessible everywhere at any time . . . with a very efficient cost/revenue ratio.” 207 Polybius, Polybius Prospectus 1 [hereinafter Polybius Prospectus] (on file with the Columbia Law Review). Eventually, Polybius plans to “grow into your daily servicer and companion ecosystem . . . enabl[ing] secure and seamless connections between life and the things we love and use every day.” 208 Id. at 2. Investors contributing to the project can supposedly expect “higher returns” than those investing in traditional banks. 209 Id. at 1. The first step in this project was the sale of Polybius tokens (PLBT) to raise money for the Polybius Foundation. Id. at 3. PLBT gives holders rights more traditionally associated with stock or other forms of ownership. Id. It promises that holders will have the “right to receive a part of distributable profits of Polybius P.I. or Polybius Bank. All tokens in aggregate will have the right to receive 20% of such profits.” Id. at 3. Note that this makes it highly likely that PLBT are securities. The prospectus recognizes as much, placing the following note at the bottom of each page:
The tokens have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States or to or for the benefit of US persons (as defined in Regulation S under the Securities Act) unless they are so registered, or an exemption from the registration requirements of the Securities Act is available. One such exemption allows the resale of tokens purchased for their own account and for investment purposes only by investors who (i) are not otherwise affiliated with the Polybius Foundation, (ii) have been exposed for some time to the economic risks that ownership of tokens entails, and (iii) are not part of the distribution of the tokens.
Id. at 1.

The development team did make some limited claims about smart contract modification. The token purchase agreement explicitly states that “Polybius shall procure that the Smart Contract is modified and/or amended via an additional smart contract” to activate tokenholder voting. 210 Polybius Crowdfunding Terms & Conditions, Polybius,
terms_and_conditions.pdf []  [hereinafter Polybius Crowdfunding Terms & Conditions] (last visited Jan. 26, 2019).
It further specifies that the voting mechanism will enable the development team to propose changes to project smart contracts and to implement the changes if they receive two-thirds of tokenholder votes. 211 See id. There are no further details.

However, we found modifiability functions in the smart contract code that extended well beyond changes to tokenholder voting rules, as Figure 12 details.

Figure 12: Polybius Modification Code 212 Polybius (PLBT), supra note 205.

Through this code, Polybius can propose modifications by deploying an entirely new secondary smart contract and linking it to the primary smart contract via the commitUpgrade function. 213 See supra Figure 12. The primary smart contract does not allow the owner to make modifications directly—the owner must first propose the upgrade, which only takes effect after three days unless the user opts out. 214 See supra Figure 12. In terms that legal readers will be familiar with, it is a “sticky default.” 215 For the classic initial treatment, see generally Omri Ben-Shahar & John E. Pottow, On the Stickiness of Default Rules, 33 Fla. St. U. L. Rev. 651 (2006).

Using these mechanisms, a development team can unilaterally change the tokens purchased by investors—or sometimes, propose changes that will be adopted if a certain percentage of users do not object. 216 It is similar to a reverse collective action clause. See generally W. Mark C. Weidemaier & Mitu Gulati, A People’s History of Collective Action Clauses, 52 Va. J. Int’l L. 51, 52–55 (2013). Unless investors scrutinize both the potential for their tokens to be unilaterally modified, and the substantive terms of the modifications actually proposed, they are unlikely to discipline hasty or abusive changes. As we describe in Part IV, investors hardly pay attention to even simple nontechnical markers of quality. It is thus incredibly unlikely that they have the technical skills to monitor a development team’s use of modification.

III. A Survey of ICOs

Having identified three salient attributes of ICO governance, we now attempt to step back to look at a larger set of issuances to see how (and if) they dealt with governance issues. We reviewed the fifty largest 2017 ICOs by amount raised in dollars. 217 As discussed in section IV.B below, there are major challenges involved in sourcing even the most basic information about this market. Finding a list of the largest ICOs is one such example. The amount of funds raised in ICOs are self-reported and listing sites rarely scrutinize their own figures. Further, there are omissions of important ICOs and other discrepancies across the various listing sites. We essentially used a list of the top fifty 2017 ICOs compiled by Coinschedule, with three notable exceptions. The site omits the Grid+ ICO, which raised about $38.5 million in its presale and ICO, as well as Tron, a controversial project that raised $70 million in its presale and ICO. See infra Figure 13 (summarizing ICOs and amounts raised). These projects would both be within the top thirty of our sample, so we manually added them to our list. Additionally, we omitted one project that was listed by Coinschedule. Sonm, which apparently raised $42 million, does not have an accessible original whitepaper. This made it impossible to determine its claims about token functionality. For each listed promotion, we scrutinized the whitepapers, token sale agreements, and computer code posted by the promoters. Appendix C pulls quotes about supply, burning, vesting, and modification (if they are available) from the issuers’ public statements. 218 See generally Appendix C, supra note 69. We compared those promises, read by investors, with what we discerned from close examination of software code. Our approach is empirical, but obviously neither comprehensive nor representative of all 2017 ICOs.

A. The Scene from 50,000 Feet

The fifty firms we studied were reported to have raised a total of approximately $2.6 billion at their ICOs and the notional initial market cap was $7.0 billion. 219 See infra Appendix A. In the sample, nineteen were headquartered in the United States, six in Singapore, and the remaining in a variety of countries, including Switzerland (five), England (two), China (two), Estonia (two), and Thailand (two). 220 See infra Appendix A. By January 2019, eleven of the projects had not released any kind of alpha version or demo of their project. 221 See infra Appendix A.

Our approach to auditing is limited: We try to take the position of a sophisticated, but time-constrained, investor. Consider, again, Polybius. Its whitepaper makes several claims that would lead us to expect certain features directly coded into tokens or other smart contracts. The most striking example is the team’s promise that “according to the conditions of the ICO, payouts to tokenholders are directly connected to the earnings of the Polybius project.” 222 satoshi092, What Are Polybius Tokens and Why Should They Be in Every Crypto-Investor’s Portfolio?, Steemit (Aug. 9, 2017)
what-are-polybius-tokens-and-why-should-they-be-in-every-crypto-investor-s-portfolio [https://]; see also Polybius Prospectus, supra note 207, at 6 (noting that moneys raised will be used “mainly, but not exclusively on acquisition of licenses, building out the systems, hiring the team and marketing”).
The team goes on to specify a range of offline activities that will support payment of the dividend, like preparation of audited financial statements, and tells readers to expect dividend payments in Ethereum. 223 See Polybius, Polybius Token Whitepaper 4 (2017),
token_whitepaper.pdf []; see also Polybius Crowdfunding Terms & Conditions, supra note 210 (“‘Smart Contract’ means the Ethereum smart contract made for Polybius . . . and is the mechanism of the distribution of Payouts to the Token holders as described in the Token Whitepaper.”). There was ample mention of dividends in the terms and conditions that governed token purchases, which calls the dividends “Payouts.” Polybius Crowdfunding Terms & Conditions, supra note 210. That old-fashioned contract specifies that token holders are “eligible for obtaining Payouts according to their stakes” and that the token code is “the mechanism of the distribution of Payouts.” Id. It even provides ways to adjust the Payout calculation in the event that Polybius repurchases and burns some circulating tokens, or to account for dilution if Polybius receives new equity financing. Id.

Beyond ERC-20 compliance and the presence of a modification feature, we did not verify that any of these features are present, largely because Polybius’s coded governance exists in bytecode (which, as you will recall, is the Ethereum machine language). Without spending a large sum of money purchasing the time and know-how of a very motivated and talented reverse engineer, an investor would have to rely on vernacular promises. 224 Analyzing bytecode involves tracing both the low-level flows of data and arithmetic in order to reconstruct a contract’s logic. It requires meticulous attention to each individual machine operation, and a memory to retain the state of the virtual machine at each step. For an introduction to bytecode, see Bernard Peh, Solidity Bytecode and Opcode Basics, Medium (Sept. 17, 2017),
solidity-bytecode-and-opcode-basics-672e9b1a88c2 [].
Below is an excerpt of what the public-facing code (incorporated by reference) looks like.

Figure 13: Polybius Bytecode  225 The main contract incorporates by reference code to perform most tasks. The figure shows an excerpt of the bytecode referenced. While a skilled analyst can reconstruct the function of the code, such analysis is beyond our scope. See Polybius (PLBT), supra note 205.

This  shows  that  it  is  not  merely  the  case  that  the  investment  depends  on  the  development  team’s  decision  to  actually  build  the  products  it  hypes  in  its  whitepaper. 226 Note that the Polybius team actually decided to release a different project than the one described in the whitepaper. Tzao Se, Past ICO Review: Why You Can’t Take Polybius to the Bank, U.Today (July 23, 2018), []. The team claimed that this was due to an E.U. regulation that was released years before the ICO. Id. This underscores the point that after an ICO, a development team is able to do whatever it wants with the funds raised. Investors must also have faith—either that ordinary contract law litigation will back up old-fashioned terms of use, or that the bytecode, which essentially no one can or will parse, renders those promises operable.

Putting unauditable smart contracts to one side, here are the results of our analysis, which compares the software to promises made in whitepapers, blog posts, and websites marketed to investors.

B. Supply Promises: Scarcity and Burning

We begin with promises regarding supply. Of the fifty tokens, we audited the code of forty-five (four remain in bytecode or in proxy contracts, and one, FileCoin, has not released any code or token). We dropped projects without auditable code from our analysis. Figure 14 illustrates how such firms approached supply scarcity commitments.

Figure 14: Scarcity Audit Results  227 See infra Appendix B. “Scarcity Claimed” in the Figure is a designation for those issuers that promised a supply restriction in their marketing documents.

Almost all issuers promise a supply restriction in their marketing documents (40 of 45, or approximately 90%). And most of those that promise a restriction deliver it (29 of 40, or approximately 75%). Overall, though, only about two in three (29 of 45, or approximately 64%) firms that we audited encoded a supply restriction. To be clear, this is not to say that the firms that did not deliver coded scarcity limits actually promised to do so—their marketing promises either did not mention scarcity or may not have discussed how it was to be effected.

The second sort of supply promise—burning—displays a different pattern. Figure 15 details our burning audit.

Figure 15: Burning Audit Results  228 See infra Appendix B.

Here, fewer firms promised to burn tokens than promised to cap supply in the initial mint (19 as compared to 40). Of those that promised to burn supply, approximately 36% (7 of 19) did not fix that claim with code.

C. Vesting Promises

Of the forty-five auditable issuers, thirty-six promised vesting in their marketing documents or whitepapers, while nine did not. Figure 16 illustrates our findings.

Figure 16: Vesting Audit Results  229 See infra Appendix B.

Figure 16 illustrates first that almost 20% of the sample did not promise to vest at all, which is a surprising result given the amounts raised. Second, of the 80% that promised to vest, the vast majority apparently did not use smart contracts to encode those rights. 230 Some projects use secondary smart contracts to encode vesting, such as the Basic Attention Token. So long as the tokens transferred before the ICO, we would count that as a coded vesting. According to Brendan Eich, BAT used this two-stage structure to have “simple, do-as-few-things-as-possible smart contracts. We were keenly aware of all the problems other projects to that date . . . had trying to get fancy with Solidity.” Email from Brendan Eich to David Hoffman (July 30, 2018) (on file with the Columbia Law Review).

D. Modification Promises

Finally, we describe the modification rules in the sample. Modification is rarely discussed in marketing materials: Only seven of the fifty firms discussed the token’s modifiability in their marketing materials or soft contracts. But overall, twelve of the fifty firms permit modification through their code. While most (4 of 7) of the firms that disclosed modification had code that backed up their promises, eight firms that did not discuss modification permitted it.

 Figure 17: Modification Audit Results  231 See infra Appendix B.

E. Summary

To  sum  up:   There  are  significant  differences  between  code  and  contract  in  our  sample. 232 For the results in summary form, see generally infra Appendix B. Projects are making governance claims that look to be modeled off of offline VC or traditional equity-based rules intended to reduce agency costs, but they are not encoding those promises into the sort of trustless, decentralized systems which undergird their networks’ purported sky-high values.

IV. Coin-Operated Capitalism?

So far, our inquiry has been motivated by two goals. First, we have tried to capture the reality of the ICO form as it existed in 2017–2018—a snapshot of a supposedly revolutionary innovation just after its birth. Second,  we  have  attempted  to  understand  smart  contracts  at  a  deep  level  of  contextual  detail.  They  are  at  the  heart  of  the  innovation  story  told  by  ICO  proponents,  some  of  whom  claim  that  code will increasingly be able to replace traditional law. 233 See De Filippi & Wright, supra note 24, at 102–03 (“Token sales are the Wild West of financing, and by using blockchain technologies and decentralized exchanges, companies, projects, or organizations can continue to raise funds by relying on lex cryptographica, ignoring geographic rules and regulations governing public markets and securities trading.”). We have traced their early history, 234 See supra Part I. explained  how  they  were  expected  to  function  in  the  ICO  market  of  2017, 235 See supra Part II. and  taken  stock  of  the reality. 236 See supra Part III. In this Part, we evaluate the distance between expectations and reality.

As we established in Part III (and in detail in Appendix B), for over 20% of ICOs in our sample where promoters promised cryptoasset supply restrictions, and 35% of promised token burning, we could not observe restrictions hard-coded into smart contracts. More starkly, we could not find hard-coded vesting restrictions in twenty-five of the thirty-six ICOs where promoters promised to adhere to such restrictions. Finally, of twelve ICOs for which our audit revealed that a central party could modify the functionality of the cryptoasset’s smart contract code, only four disclosed that ability in their promotional materials.

Our results raise serious questions about the role of code in ICOs. Do investors punish ICOs that fail to build key protections into code or fail to disclose the power of modification? If not, is that because code does not matter as much as its proponents claim it does? Or is it because the ICO market is broken? We examine those questions in the sections that follow.

A. Paper, Code, and Market Response

For a minute, let’s look at our results from the perspective of an ICO advocate who believes that code has the potential to be a cheaper and better way of delivering investor protections than traditional venture financing routes. Should this person be troubled by our results? At one level, the answer has to be yes. The fact that a majority of the leading ICOs—each of which raised over $20 million—fail to write their own vesting promises into code is inconsistent with a story about code replacing law. It also raises serious questions about whether investors are adequately protected from founder desertion.

But our ICO advocate might push back. Perhaps we are wrong about the absence of hard-coded rules (and if we are, we hope to be corrected). Or, maybe, investors do take the problems we observed in Part III into account when investing. That is, maybe problems with coded investor protection are reflected in market prices.

Though the ICO market is young, we are skeptical of this “investor-protection code is priced” thesis. As a first cut, the sheer number of problems in our sample suggests otherwise. Our results show that the majority of the top-grossing ICOs of 2017 had major problems with how code bore out their antiexploitation disclosures. 237 See infra Appendix B. To  quantify  the  idea  of  paper–code  distance,  we  refer  to  any  uncoded  investor  protection  for  supply,  burning,  vesting,  or  incongruence  between  code and disclosures regarding modifiability as “distance.” Using these data, we score each ICO from zero to four. 238 That is, the token gets a 1 for scarcity claims not matching code, a 1 for vesting claims not matching code, a 1 for burning claims not matching code, and a 1 if it has undisclosed modification terms. Of the fifty ICOs, we give forty-nine a score because we can evaluate either the token or the associated smart contracts. Fourteen have no distance, ninteen have one marker, twelve have two, three have three, and one (Monaco) has four. If investors know about the problems we’ve identified, then the makeup of the top fifty suggests that they don’t much care.

Nor do the postsale market metrics we are able to observe enable us to say a great deal about the “code is priced” thesis. We do not see significant changes in code congruence over time, and we lack a natural experiment on initial code pricing. What we can observe is whether (over time) firms that encode their disclosures have different returns and trading volumes. An approach suggested to us by a commentator on an earlier draft of this paper 239 We thank Professor Robert Bartlett for his suggestion and the data that gave it life. was to develop a rolling weighted portfolio of the prices (and trading volume) of our fifty projects, controlling for their disclosed and coded governance rules. Using this approach, we find that—consistent with earlier work—disclosed governance rights do seem to promote better returns. 240 See supra note 31.

Figure 18: Vesting Disclosures and Rolling Average Cumulative Returns 241 Data from CoinMarketCap, courtesy of Professor Bartlett. Bartlett pulled daily volume and price data from and created a weighted average portfolio using our coding about project quality. We modified his work when later checking revealed minor changes in the coding of particular projects. Both the .do and the underlying data are on file with the authors and the Columbia Law Review.

The next figure repeats the first, but now breaking out projects that coded vesting and those that promised but did not code it.

Figure 19: Vesting (Coded vs. Disclosed) and Cumulative Returns 242 For information regarding from where this data set was obtained and the procedures performed on it, see supra note 241.

Here, we can see that firms that coded vesting had returns that were indistinguishable from those that did not code it. Professor Robert Bartlett reported similar results on scarcity, as well as trading volume. In a series of regressions, he found while disclosure of vesting and scarcity were correlated with higher returns, coding of those attributes had no consistent and significant effects. 243 The authors’ regression files are on file with the Columbia Law Review. Trading volume and price were, however, closely tied to Bitcoin’s price and trading volume, a result that fits with other recent research. 244 See Griffin & Shams, supra note 8, at 33 (indicating that Tether, a digital currency, influences Bitcoin pricing).

Finally, we are skeptical of the “investor-protection code is priced” thesis because buy-side literature in 2016–2018 rarely treated the guts of code as something worth considering. Like stocks, ICOs have developed a wide range of secondary information sources, including “ratings” websites. But most of these raters do not vet smart contract code. Of the top five English-language rating sites by Alexa ranking, which measures how popular a website is, 245 Kim Kosaka, What Is Alexa Rank?, Alexa Blog, [] (last visited Mar. 19, 2019). only one posts information about code quality, though not of significant detail. 246 We use ICOnow to identify the top five ratings sites. Top ICO Listing Sites, ICOnow, [https://] (last visited Jan. 27, 2019). Four of these sites do not analyze smart contract code: (1) (Alexa rank: 14,206); (2) (Alexa rank: 15,078); (3)  (Alexa rank: 18,861); and (4) (Alexa rank: 136,699). Id. Only one of the four sites does analyze smart contract code: (Alexa rank: 79,549). Id. However, the site’s attention to code is thin. While it mentions smart contracts on its “methodology” page, it does not regularly (if ever) analyze any code itself. See Project Evaluation, ICORating, [
WXS6-UGH6] (last visited Feb. 17, 2019).
Similarly, code takes a backseat to other investment drivers in the retail valuation literature.

In the period before 2017, advisory publications focused on a project’s ability to deliver anonymity and decentralized governance, which in turn was thought to help hedge against regulation. 247 See, e.g., Roger Aitken, German Blockchain Startup BlockPay “Bootstrapped” with Crypto ICO Investment, Forbes (Aug. 20, 2016),
rogeraitken/2016/08/20/german-blockchain-startup-blockpay-bootstrapped-with-crypto-ico-investment/ [] (“For criminals and legitimate businesses alike, the blockchain’s transparency could pose a real problem. . . . If you can figure out where the money is going, you can gain a major competitive edge over a company.”); Marco Santori, Appcoin Law: ICOs The Right Way, CoinDesk (Oct. 15, 2016), [] (“Appcoin developers should consider building products . . . which run . . . in a decentralized fashion. The more unaffiliated developers contributing to the development and operation of the product, the less likely any profit . . . is to be considered ‘from the efforts of others’—and the less likely vertical commonality will be present.”).
In the period after 2017, guides focused on the potential for widespread functional use within the startup’s system, 248 See, e.g., Chinedu Adeyemi, Cryptocurrency: How to Start? Guide to Cryptocurrency Trading for Beginners, The Oofy (June 2, 2018), [https://] (“Some coins seem to keep increasing in value simply due to supply-demand factors. This trend might not be sustainable. For a coin to have [long-term] supported value, it must have a real-world use case eventually.”).
the reputation and involvement of the founders and creative team, 249 How to Choose an ICO to Invest In, Cointelegraph,
ico-101/how-to-choose-an-ico-to-invest-in#read-the-white-paper [] (last visited Jan. 27, 2019) (advocating for potential investors to “[f]ind out everything [they] can about the development team” and to “make sure that the developers are not anonymous”).
and the avoidance of obvious scams. 250 See, e.g., John Wasik, Why Millennials Are at High Risk for Bitcoin & ICO Fraud, Forbes (Mar. 5, 2018), [] (“One simple way to avoid fraud is to reject solicitations. Whenever you see a mobile ad or email telling you about overnight riches in cryptocurrencies, avoid clicking on their links.”). Eventually, some investors gave up on ICOs completely. 251 See supra note 19. But there’s never been an emphasis on checking that coded governance actually happens.

For instance, while the bestselling Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond does exhort investors to scrutinize developer activity, 252 See generally Burniske & Tatar, supra note 31. it does not view the actual product of developer activity—the code—on the same plane. Indeed, the book does not include a project’s codebase in the materials that it suggests a fundamental-analysis investor would want to consider. 253 See id. at 172–73 (discussing the materials necessary to conduct fundamental analysis of cryptoasset investments). To the authors of most buy-side advice, cryptocurrency investment is an exercise in reading whitepapers, blog posts, and commentary—and watching the social-media trade winds—but rarely involves inquiry into code. 254 See, e.g., Reza Jafery, Cryptocurrency Fundamental Analysis: 4 Ways to Gauge the Strength of a Community, Hacker Noon (Jan. 8, 2018), []; Simon Kertonegoro, Fundamental Analysis: How to Judge a Cryptocurrency’s Intrinsic Value, Medium (Mar. 12, 2017), [
HNA3-L3LE]; Dean Patrick, On Tokenomics and ICO Valuations, Medium (Jan. 13, 2018), [].
Taken together with analysis of our sample, these impressionistic sources of evidence lead us to believe that investor-protection code is not a significant driver of market pricing. 255 Aside from Rhue, supra note 31, at 20, who finds that identification of “bugs” on Etherscan is associated with lower market capitalization, we are aware of no other analysis of the relationship between code and market value.

ICO advocates might reasonably respond to this absence of evidence for the importance of code in a number of ways. First, it might be the case that investor-protection code will manifest itself as a driver of market returns in the future. Perhaps future researchers will develop measures that capture price tremors in response to phenomena like the one we identified in Part III. It is also possible that the ICO market’s “crypto winter” was driven by investors who scrutinized the code of circulating tokens and found it lacking.

Some commentators do advise investors to pay attention to the underlying code of cryptocurrency projects, and their approach may be gaining adherents. 256 See Rohr & Wright, supra note 18, at 27 n.73 (suggesting that failure to list code in an open source site “may signal ulterior motives on the part of the party selling the token”). Others agree. See How to Choose an ICO to Invest In, supra note 249 (“Evaluate the quality of the code. If a project has no working code whatsoever prior to an ICO, or even if they do, but it isn’t open source—that’s a major red flag.”); Michiel Mulders, 10 Keys for Evaluating Initial Coin Offering (ICO) Investments, CryptoPotato (Apr. 26, 2018), [https://] (“The quality of a developer can be understood by analyzing some of their code . . . . Avoid messy developers.”).
Further, some ICO promoters take to Reddit message boards to offer bounties to independent parties interested in auditing smart contract code—an indication that attention to code (or at least the perception of attention to code) is valuable from the promoter perspective. 257 A search of “ICO audit” of the Etherium Community’s Developer Reddit evidences as much. See, e.g., bfjs123, Best Way to Get My ICO Contract Audited?, r/ethdev, Reddit (Feb. 6, 2018), []; Bspendcom, Looking for ICO Security Audit, r/ethdev, Reddit (Oct. 12, 2017), https:// [
TA54-Y9SC]; Cointed, [BUG BOUNTY][ICO] Cointed Token Audit (100k EUR Reward!), r/ethdev, Reddit (Oct. 12, 2017),
bug_bountyico_cointed_token_audit_100k_reward/ [].
These audits focus on the antihacking aspects of cybersecurity, not specific instantiation of economically relevant promises. 258 See, e.g., Cimpanu, supra note 114 (citing industry study). This auditing is quite important, of course. See Anna Irrera, More Than 10 Percent of $3.7 Billion Raised in ICOs Has Been Stolen: Ernst & Young, Reuters (Jan. 22, 2018), [] [hereinafter Irrera, More Than 10 Percent]. does feature crowdsourced evaluations of the presence or absence of smart contract provisions, including hard-coded vesting constraints. See ICO Checker,, [] (last visited Jan. 26, 2019). But its Alexa rank is in the millions, in contrast with the top five sites, which range in ranking from 136,699 to 14,206. See supra note 246. But perhaps the recent “modifiability crisis” after the Bancor hack will bring our investor-protection concepts to the fore. In other words, the market will reflect investor protections found in code sooner or later. 259 Much of the excitement over ICOs has shifted to a new form of token-based fundraising: the “security token” offering, or STO. STOs are ICOs in which issuers embrace the security-like nature of their tokens, adhering to SEC rules governing offers and sales, while adding features of traditional instruments like cash flow or governance rights. The imminent rise of STOs could give the SEC a greater opportunity to address consumer protection risks posed by token sales. Or, enthusiasm for STOs could be pure hype. See, e.g. Aashish Sharma, Will STOs (Security Token Offerings) Rule Over ICOs in 2019?, Hacker Noon (Jan. 12, 2019), [] (“We have it on a good source that the estimated growth of STO is . . . $10 trillion over the next few years.”); Syed Shoeb, Will 2019 Be the Year of the STO?, Hacker Noon (Dec. 17, 2018), [] (explaining that STOs are ICOs with “certain regulations that hold the token issuers accountable”). For an overview on the technical tradeoffs involved in STO issuance, see Matthew Finestone, The 2019 Truth on Security Tokens, Loopring Protocol (Dec. 21, 2018),
loopring-protocol/the-2019-truth-on-security-tokens-7800c14129e4 [].

A second potential response from our ICO advocate might take a different tack. Instead of defending the importance of code in delivering investor protections, the advocate might retreat and take up a holistic defense. Specifically, even if code is failing to protect investors, there still remain legal and reputational checks on exploitation and desertion by ICO teams. That is, there will be substitutes for coded governance rules. Instead of the law of the blockchain, the law of the Swiss stiftung, the California Business Practices Code, and the Securities Act of 1933 will ensure that bad actors are punished, and the market will do the rest. 260 These are some of the bodies of paper law that plaintiffs have invoked in their lawsuits against Tezos and Paragon, for instance. See Complaint at 2, Davy v. Paragon Coin, Inc., No. 18-cv-00671 (N.D. Cal. Jan. 30, 2018), 2018 WL 653425; Complaint at 19, Gaviria v. Dynamic Ledger Sols., Inc., No. 6:17-cv-01959 (M.D. Fla. Nov. 13, 2017), 2017 WL 5713392; Complaint at 5, Baker v. Dynamic Ledger Sols., Inc., No. CGC-17-562144 (N.D. Cal. Oct. 25, 2017), 2017 WL 5022656.

As we argued above, the legal safeguards against ICO investor exploitation are, at present, significantly weaker than in other investment markets. 261 See supra Part II. It is easy for an issuer to set up shop in a low-regulation jurisdiction, 262 See Rohr & Wright, supra note 18, at 30–31, 96. and  the  architecture  of  the  cryptoeconomy  enables  far  more  user  and  promoter  anonymity  than  typical  markets. 263 See, e.g., Shifflett & Jones, supra note 8; John O. McGinnis & Kyle Roche, Bitcoin: Order Without Law in the Digital Age 30–33 (Nw. Pub. Law Research Paper No. 17-06, 2018), (on file with the Columbia Law Review); Massimo Bartoletti, Salvatore Carta, Tiziana Cimoli & Roberto Saia, Dissecting Ponzi Schemes on Ethereum: Identification, Analysis, and Impact 1 (Mar. 10, 2017) (unpublished manuscript) (on file with the Columbia Law Review). And even for transparent issuances conducted in the shadow of U.S. law, our background legal regime presents untested forms of investor protection. While a number of class-action suits, largely premised on state law violations, have been filed against some prominent ICO teams, the viability of any of their claims remains unclear. 264 See supra note 260 and accompanying text. The deterrent threat of legal ramifications is not nearly as strong as in typical markets—and, of course, is far weaker than the automated enforcement of code.

At a deeper level, arguments about the power of traditional legal deterrence are dangerous for ICO advocates. They show that advocates have already abandoned the high ground of “lex cryptographica.” 265 Cf. De Filippi & Wright, supra note 24, at 193–204 (arguing that ICOs can rely on “lex cryptographica” to enforce investor protections). Smart contract code was, after all, supposed to render traditional interme­diaries useless, obviate the need for regulation, and reduce transaction costs for participants. 266 See, e.g., ChainTrade, 10 Advantages of Using Smart Contracts, Medium (Dec. 26, 2017), [] (describing in greater detail these classic arguments raised in support of smart contracts). Without those justifications, it becomes harder to see what benefits ICOs provide, other than regulatory arbitrage.

To be explicit, if the value of blockchain-based financial products turns on the reputations of their creators or the vitality of legally enforceable wrap contracts, we see no good reason why traditional regulatory tools—securities law, know-your-customer regulations, and fiduciary suits—should not heavily police a space that currently is rife with the opportunity to bilk investors. The analogy to the failures of the pre-1933 securities regime would be unavoidable. 267 See Carol J. Simon, The Effect of the 1933 Securities Act on Investor Information and the Performance of New Issues, 79 Am. Econ. Rev. 295, 296–97 (1989) (describing briefly the failures in the market that led to the passage of the Securities Act of 1933).

However, we are not ready to make that sort of strong claim about the missing role of intermediaries. Some projects encode all of their governance protections, and others appear to fall short largely only on vesting. 268 See supra Part III. We simply do not know enough at the moment about what incentives encouraged particular turns to coded governance. Nor have we investigated the more mature 2018 market. Today, several sites are working to develop informally rich certification systems. 269 See, e.g., Messari Disclosures Registry, Messari, (on file with the Columbia Law Review) (last visited Jan. 27, 2019). Perhaps such systems will evolve and further depress the need for old-fashioned intermediation in the absence of regulation.

But perhaps not. If problems with investor protection code are not priced into the market, and traditional law presently has trouble deterring abuses, where does that leave us?

B. Whose Market Is This?

The absence of evidence suggesting that investors are well-protected in the ICO market raises a natural question for legally-minded readers: Should we regulate this thing? Some see evidence of fraud and call for the whole market to be shut down. 270 This has been the approach taken, for example, by regulators in China and South Korea. See Zetzsche et al., supra note 16, at 30–32. Others would like the state to keep out. 271 See, e.g., Richard Waters, To Coin a Craze: Silicon Valley’s Cryptocurrency Boom, Fin. Times (Sept. 13, 2017), (on file with the Columbia Law Review) (quoting Tim Draper as stating that “ICOs are filling in where governments have failed”); cf. Max Raskin, The Law and Legality of Smart Contracts, 1 Geo. L. & Tech. Rev. 305, 333–40 (2017) (arguing for a light hand on smart contract regulation). Each approach has costs and benefits, of course—a conundrum where good things like innovation, investor protection, and regulatory clarity sit uneasily alongside each other. 272 See generally Chris Brummer & Yesha Yadav, Fintech and the Innovation Trilemma, 107 Geo. L.J. 235 (2019) (describing a theoretical framework for understanding the competing goals of clarity, innovation, and market integrity that regulators seek to balance when confronting new financial technology). There are tradeoffs galore.

For the pragmatists out there, a lot depends on who is being protected, and who benefits from innovative change. Are the investors actually grandparents risking their retirement savings? 273 See Michael Hiltzik, When Grandma and Grandpa Join the Frenzy, You Know Bitcoin is Turning into a Bubble, L.A. Times (Dec. 1, 2017),
business/hiltzik/la-fi-hiltzik-bitcoin-bubble-20171201-story.html (on file with the Columbia Law Review).
Or are they day-traders enjoying a virtual casino? 274 See, e.g., John Omar, Making a Living Day Trading Cryptocurrency, Chain Operator, [https://] (last updated Sept. 1, 2018).
We  might  want — really,  we  do  want — to  protect  mistaken  elders  more  than  thrill-seekers. 275 See, e.g., Jacob Hale Russell, Misbehavioral Law and Economics, 51 U. Mich. J.L. Reform 549, 549–54 (2018) (arguing for a normative distinction between taste-driven and mistake-driven irrationality). Things do get complicated for our prejudiced normative priors when it’s “grandma and grandpa” who are seeking the thrills. See Peter Rudegeair & Akane Otani, Bitcoin Mania: Even Grandma Wants In on the Action, Wall St. J. (Nov. 29, 2017), (on file with the Columbia Law Review). We also must be aware that regulations often will protect first-movers against competition by setting up new barriers to entry. And any serious regulatory strategy needs to help combat cryptoassets’ role in supporting illicit markets. 276 See, e.g., Foley et al., supra note 64, at 1. To inform the best approach to regulation, we need to know a lot more about the ICO buy side.

We see four archetypal participants on the buy side in the ICO market. Each has different implications for how to interpret the sell-side picture we have painted in this Article. Gaining a better read on the precise ratios and combinations of each will be a key next step for scholars and policymakers who deal with ICOs.

1. Irrational Exuberance. — The conventional wisdom about ICOs—the meme that drives most headlines—is that explosive valuations were the result of a massive financial bubble. As one leading analyst put it in the New York Times, “It’s not going to last forever, but it’s fun in the interim. The space is giddy right now.” 277 Popper, Easiest Path, supra note 10 (internal quotation marks omitted) (quoting Chris Burniske, an industry analyst). For industry postmortems on the alleged financial bubble, see supra notes 14 and 19. A massive financial bubble would certainly help explain why the market didn’t seem to care about the investor protections in smart contract code.

The possibility of a bubble accords well with the existing literature on what drives cryptoasset performance. While we are the first to study investor-protection measures found in code, numerous researchers have investigated the relationship between market performance and a host of potential predictors, including founder profiles, business plan charac­teristics, social media factors, known cybersecurity incidents, and more. 278 See supra note 31 (describing the existing literature that explores the influence of various factors on market performance).

A consistent theme in this emerging literature is that reputation is the key to understanding the ICO market. Unfortunately, reputation is hackable. For instance, one paper finds that management team quality, as rated on a website called, predicts market performance. 279 See Momtaz, supra note 31, at 21, 31 (defining management team quality and calling it a “first-order predictor” for ICO success). But see Rhue, supra note 31, at 22–24 (finding no clear link between rating scores and prices). ICObench, however, has been accused of operating as a “pay-to-play” operation. 280 See Filip Poutintsev, Beware of ICO Bench!, Cryptocurrency Hub (May 13, 2017), []. As another commentator puts it, “Most incredible of all . . . is just how blatant the greed and corruption exhibited by sites like ICObench has become, so much so that even the Marquis de Sade himself would blush if he were alive today.” ICObench Warmer, Tokenicide (Apr. 24, 2017), []. Indeed, many rating platforms at the heart of the ICO informational ecosystem 281 See Kai Sedgwick, ICO Trackers Are the New Gatekeepers of Crowdsales, (Mar. 22, 2018), [] [hereinafter Sedgwick, ICO Trackers]; WHA Project, We Are Rated by ICO Bench Experts Now!, Steemit (Sept. 21, 2017),
cryptocurrency/@whaproject/we-are-rated-by-ico-bench-experts-now []. Like Yelp, where business owners manage their own Yelp page, the project owners manage everything except the rating on the project’s ICO page within the rating site. Any project can submit a request for an ICO page, but the sites reserve the right to deny requests at their discretion. See, e.g., FAQ , ICObench, [] (last visited Jan. 27, 2019) (describing ICObench’s rating system, which combines a rating by the website with ratings by “independent experts”); Publish Your ICO, ICObench, (on file with the Columbia Law Review) (last visited Jan. 27, 2019) (requesting information from ICOs and preICOs wishing to publish pages on ICObench and offering expedited review for a fee). Each rating site also has a unique feature they promote to set them apart from the others. For example, ICObench distinguishes itself with ratings crowdsourced by “independent experts,” rather than via the paid promotion model. See Stats and Facts, ICObench, [] (last visited Mar. 8, 2019). Cryptorated allows users to “upvote” tokens in the queue to be rated and provides both “actual ratings” and “curved ratings” for users to see where a token stands in relation to other ICOs. See ICO Rating System, Cryptorated,
calculator/ [] (last visited Jan. 27, 2019). Others have other features. ICO Drops has an “interest level” weighing short-term conditions, and a “bounty program” that allows users to get tokens by helping the ICO by, for example, promoting it on social media. About Us, ICO Drops, [] (last visited Jan. 27, 2019). ICORating organizes its IPOs by ten investment ratings from positive to negative, based on the “independent opinion[s] of ICORating experts.” ICORating, [] (last visited Jan. 27, 2019); Project Evaluation, ICORating,
methodology/ [] (last visited Jan. 27, 2019).
operate on a “pay-to-be-rated” model. 282 See Sedgwick, ICO Trackers, supra note 281. Project owners place a high value on their project’s rating and are willing to pay as much as $20,000 for a rating on the most influential sites. 283 Kirill Shilov, What Should Your ICO Marketing Plan Look Like in 2018?, Hacker Noon (Jan. 16, 2018), [] (reporting that ICORating charges $20,000 for a report). Altogether, the average cost of advertising packages from top ICO marketing agencies starts at around $280,000. Id.
We had little success independently investigating how much a number of popular rating sites charge. Some rating sites, such as ICO Champs, ICO Drops, and Smith + Crown, disclaim any fee-for-rating service. See Frequently Asked Questions About ICO Champs, ICO Champs, [
M83W-KKZ2] (last visited Jan. 27, 2019); Privacy Policy, Smith + Crown, [] (last visited Jan. 27, 2019); Submit ICO, ICO Drops, [] (last visited Jan. 27, 2019). Others have premium models which permit faster listings or access to special platforms in return for payment, such as CoinGecko and ICObench. See How Can I Make My ICO Sponsored?, CoinGecko, [] (last visited Jan. 27, 2019); Premium, ICObench, [] (last visited Jan. 27, 2019).
Finally, a few popular sites are explicit that they take payment, but sometimes will not disclose how much. For example, ICO Holder requires $500 to be listed. See Publish ICO, ICO Holder, [] (last visited Feb. 5, 2019). On the other hand, CoinSchedule, ICO Alert, ICO Rating, and ICO Watchlist will not disclose their price until after an ICO has been submitted for listing. See Add a New ICO, ICO Watch List, [] (last visited Jan. 27, 2019); Consulting, ICO Alert, [] (last visited Jan. 27, 2019); ICORating Terms and Conditions, ICO Rating, [] (last visited Feb. 5, 2019); The Ultimate ICO Guide, CoinSchedule, (on file with the Columbia Law Review) (last visited Jan. 27, 2019) .
Such paid systems have well-known pathologies, as reflected in the credit-ratings experience during the financial crisis. 284 See Gretchen Morgenson, Ratings Agencies Still Coming Up Short, Years After Crisis, N.Y Times (Jan. 8, 2016), (on file with the Columbia Law Review). As a result, when academic papers find that some proxy for social “hype” or “buzz” correlate with higher returns, 285 See Bourveau et al., supra note 26, at 5; Rhue, supra note 31, at 21–23. we are not heartened. Instead, they only make us worry about targeted ads 286 See Louise Matsakis, The Cryptocurrency Industry Might Actually Benefit from an Ad Ban, WIRED (Apr. 4, 2018), []; Kate Rooney, Twitter Bans Cryptocurrency Advertising, Joining Other Tech Giants in Crackdown, CNBC (Mar. 26, 2018), []. and “pump-and-dump” cartels that coordinate massive social media pushes to temporarily inflate prices before selling their tokens to their marks. 287 See Griffin & Shams, supra note 8; Julian Hosp Tenx, The ICO World Is Full of Pump-and-Dump Schemes—Don’t Be a Victim, Venture Beat (Aug. 26, 2017), []; Oscar Williams-Grut, ‘Market Manipulation 101’: ‘Wolf of Wall Street’-style ‘Pump and Dump’ Scams Plague Cryptocurrency Markets, Bus. Insider (Nov. 14, 2017),
pump-and-dump-telegram-2017-11 []; see also Erin Griffith, The Hustlers Fueling Cryptocurrency’s Marketing Machine, WIRED (June 12, 2018), [] (“Much of the [crypto] industry’s action happens on a messaging app called Telegram.”); Deep Patel, 6 Red Flags of an ICO Scam, TechCrunch (Dec. 7, 2017), [] (describing Reddit sub-threads’ discussions of specific ICOs as a good source for technical evaluations of crypto projects).
These sources of noise and misdirection have contributed to many bubbles in the past. 288 See Erik F. Gerding, Law, Bubbles, and Financial Regulation 63–99 (2014).

Of course, reputation-driven markets are not necessarily all bad; it is the particular characteristics of this one that cause concern. We are not alone in this worried hand-wringing. Even researchers who hold out hope that “the wisdom of crowds” might one day triumph still characterize the ICO market as a series of “information cascades” susceptible to insanity. 289 Lee et al., supra note 31, at 23, 30–31 (acknowledging that the “insanity of crowds” might be at work). Cooler heads suggest that taking market returns seriously during the 2017–2018 highs would have been seriously misleading, given the market’s immaturity and “speculative frenzy.” 290 See Howell et al., supra note 26, at 4 n.3 (“[I]n light of the sector’s immaturity and speculative frenzy, returns appear more divorced from the goal of serious utility token issuers to use the ICO to (a) raise financing; and (b) promote customer adoption of their networks.”). As of early 2019, there is compelling evidence that valuation highs were more bubble than accurate assessments of promising projects. The  market  capitalization  of  all  cryptocurrencies  fell  over  eighty  percent  in  2018, 291 See Ryan Browne, Cryptocurrencies Have Shed Almost $700 Billion Since January Peak, CNBC (Nov. 23, 2018), [] (tracking a decline in total cryptocurrency market capitalization to $138.6 billion, from a peak of over $830 billion in the beginning of 2018). and  trading  of  certain  coins  has  essentially  stopped  completely. 292 See Deceased Coins, Dead Coins, [] (last visited Jan. 27, 2019) (listing 680 cryptocurrencies as “deceased,” along with another 182 as “scams”); see also Jay Adkission, The Cryptocurrency Paradox and Why Crypto Is Failing, Forbes (Nov. 28, 2018), [] (describing the “vast majority” of cryptocurrencies as having failed). Research that identifies the particular sources of air for the bubble will be valuable going forward. 293 We have observed a number of instances in which reports of market capitalization greatly exceed what we have been able to identify on blockchain explorers like Theoretically, investors could determine how many tokens were provided to how many investors during an ICO and in exchange for what kind of consideration. The number of transactions should correspond to the number of buyers. Verifying the size of a team’s ICO looks like a mathematical exercise: The product of the number of tokens sold and the price paid. In practice, however, this kind of analysis is impractical. First, teams routinely engage in private, individualized sales of their tokens to specific investors outside of the blockchain. See Applicature, Private Sale or Public Sale?, Medium (Nov. 8, 2018), [] (“Presaling coins of a cryptocurrency or token of a blockchain project has become an effective method of raising funds for the development of a new application.”). Though it is possible to verify that a project’s tokens were transferred to certain wallets at some point before its public sale, there is no way to know how much the owners of those wallets actually paid for the tokens. Maybe unsurprisingly, the self-reported size of a team’s private presale often dwarfs the amount sold in its ICO. Thus, for instance, though Paragon announced its launch with a $50 million capital raise including presale placements, the SEC recently entered into a consent judgment finding only around $12 million in total was raised. See supra note 174.
Second, there is generally no way to link a given Ethereum wallet address to a specific person or institution. See Dominiek Ter Heide, A Closer Look at Ethereum Signatures, Hacker Noon (Feb. 16, 2018), [] (“The notion of an account is a bit of a misnomer, because in strict technical terms there are only keys and a ledger of funds that correspond with those keys.”); cf. Sudhir Khatwani, 6 Ways to Guarantee Anonymity When Making Bitcoin Transactions, Coin Sutra (Nov. 10, 2018), [] (“Bitcoin transactions, by design, are not linked to a person or identity . . . . A person’s name, physical address, or email is found nowhere in the transaction.”). Ethereum addresses can be created rapidly and for free. See, e.g., Create New Wallet, MyEtherWallet, (on file with the Columbia Law Review) (allowing users to instantly generate an Ethereum wallet address at no cost). As a result, though it’s possible to verify that a certain number of Ethereum addresses received a project’s tokens, it’s impossible to confirm that a certain number of investors participated in the sale. A development team seeking to drive up enthusiasm for its token might spawn a high number of wallet addresses and then transfer tokens to them. These transactions would be indistinguishable from legitimate arm’s-length purchases by actual investors. As a result, even the portion of an ICO that takes place on a blockchain is subject to manipulation.

In a sense, a bubble would be the least surprising and most manageable explanation of the ICO market’s rapid price swings. Regulators would need to focus on the time-honored, if difficult task of popping future bubbles with better informational requirements. But the “animal spirits” of irrational exuberance are not the only plausible drivers of ICO demand. 294 See generally Donald C. Langevoort, Taming the Animal Spirits of the Stock Markets: A Behavioral Approach to Securities Regulation, 97 Nw. U. L. Rev. 135 (2002) (offering a behavioral approach to irrational markets).

2. Illicit Demand. — As a complement to the bubble theory of cryptoasset success, many signs suggest that a material portion of cryptoasset demand is driven by money launderers, tax evaders, and other holders of illicit cash. 295 See Omri Marian, Are Cryptocurrencies Super Tax Havens?, 112 Mich. L. Rev. First Impressions 38, 43–44 (2013),
1001&context=mlr_fi [] (“Tax-evaders and money launderers regularly use . . . tactics to attempt to hide the sources, as well as the destination, of funds.”); Ryan Clements, Decoding the Demand for Cryptocurrency: What Is Driving the Historic Price Surge?, FinReg Blog (Sept. 26, 2017),
2017/09/26/decoding-the-demand-for-cryptocurrency-what-is-driving-the-historic-price-surge/ [] (“Another reason for the run up in price of cryptocurrencies. . . is its ability to facilitate criminal activity and to make transactions anonymously—away from the informational reach of government and regulators.”).
Some of these illicit holders might be inspired by the original, anarcho-capitalist vision for Bitcoin: to “win a major battle in the arms race and gain a new territory of freedom” from centralized governments. 296 Email from Satoshi Nakamoto to the Cryptography Mailing List, Re: Bitcoin P2P E-Cash Paper (Nov. 7, 2008),
msg09971.html [].
Others might not have politics on their mind.

This  second  piece  of  “conventional  wisdom”  about  the  cryptoasset  market  was  initially  suggested  by  accounts  of  how  Bitcoin’s  growth  was  fueled  by  the  drug  trade. 297 See Reza Raeesi, The Silk Road, Bitcoins and the Global Prohibition Regime on the International Trade in Illicit Drugs: Can This Storm Be Weathered?, 8 Glendon J. Int’l Stud., 2015, at 1, 2, 9 (noting that for a time, between 4.5% and 9% of all Bitcoin transactions were connected to the Silk Road, an online black market associated with trade in illegal drugs). Recent allegations that Russian hacking of the Democratic National Committee in 2016 was bought and paid for using Bitcoin have made this concern more salient. 298 See Jordan Pearson, The Russians Who Allegedly Hacked the DNC Mined Bitcoin to Fund Their Operation, Motherboard (July 13, 2018), [
Indeed, one recent paper found that approximately half of all bitcoin transactions were associated with some form of illegal activity. 299 See Foley et al., supra note 64, at 2 (“For example, approximately one-quarter of all users (26%) and close to one-half of bitcoin transactions (46%) are associated with illegal activity.”). Another found that the imposition of “Know Your Customer” policies designed to enforce tax and anti-money laundering laws shrank ICO returns. 300 See Lee et al., supra note 31, at 3 (“[A]nti-money laundering measures, such as a Know Your Customer policy, negatively predict fundraising success.”) .

This source of demand would have entirely different implications for ICO regulation than the “bubble” story. Obviously, it would seriously weaken the case for ensuring an “innovation-friendly” environment through well-tailored regulation. It would also counsel in favor of greatly increasing scrutiny on the major players in an ICO ecosystem who are benefiting from their dalliance with criminal underworlds.

Along with the “bubble demand” hypothesis, the “illicit demand” hypothesis also comports with some of our results. For instance, if criminal payments facilitation is indeed a major driver of demand for ICOs, then it is unsurprising that investors do not seem to care about whether founder vesting promises are delivered via smart contract code. Instead, they might simply be treating all ICOs like new printings of black-market money. If this is the case, then the high-flying business plans found in ICO whitepapers are merely window dressing, or an initial spark to help create a network effect for a new cryptocurrency. This form of demand could dovetail with the speculators driving the bubble described above. And it seems fair to say that gamblers, bubble speculators, and criminal cartels alike will not be inordinately attentive to smart contract code.

3. Crypto Winnings. — A third possible source of ICO demand might be coming from investors who raked in gains on investments in Bitcoin and Ethereum. These two cryptocurrencies have appreciated enormously since the beginning of 2015. This has led to massive wealth-creation for a cohort of so-called “Bitcoin millionaires,” 301 See Don Reisinger, Newly-Minted Bitcoin Millionaires Are Lining Up to Buy Lamborghinis, Fortune (Apr. 3, 2018),
lamborghini-when-lambo/ [].
and their decisions about what to do with their winnings might be driving a fair bit of ICO success.

This hypothesis might play out in two ways. First, ICOs might serve as a decent place to park winnings that are trapped in crypto purgatory. To the extent that the “crypto winners” have been the illicit actors described above, they will have trouble converting their cryptocurrency holdings to fiat money through traditional channels. To be explicit, even if they could easily turn ether or Bitcoin directly into cash, they might not want to—they might be worried that governments would investigate the owners of fiat cash hoards.

Instead, they might attempt to wait until cryptocurrency affords them more access to consumption in the real world. In doing so, ICOs would provide a reasonably good vehicle through which to diversify their holdings and to attempt to invest their winnings in potentially lucrative ventures.

Second, to the extent that some investors treat cryptoasset markets like casinos, they might be simply gambling with the house’s money. 302 See, e.g., Derek A. Dion, Note, I’ll Gladly Trade You Two Bits on Tuesday for a Byte Today: Bitcoin, Regulating Fraud in the E-Conomy of Hacker-Cash, 2013 U. Ill. J.L. Tech. & Pol’y 165, 187 (noting the extent of gambling linked to Bitcoin). That is, it is easier to imagine investing in speculative assets, without caring too much about the details, when the stake one uses to invest with is itself the product of recent, sharp, gains. This is why people sometimes (foolishly) play the roulette wheel after winning at blackjack at the casino.

The “crypto winnings” hypothesis is the least-explored in literature about ICO demand and market performance. Nevertheless, there is preliminary evidence supporting it. Specifically, one time-series analysis suggests that blockbuster ICOs have negative effects on Bitcoin and ether prices. 303 See Masiak et al., supra note 31. This suggests that investors are trading between ether and Bitcoin on the one hand, and ICOs, on the other. Other analysts observe that ICO teams who amassed huge Ethereum war chests from the proceeds of their token sales were eventually forced to liquidate them as the price of ether dropped. This intensified price declines in not only ether but tokens as well. 304 See, e.g., Angel Reyes, Ethereum ICO Funds Liquidation Reaches All-Time High as December Ends, Crypto.IQ (Dec. 31, 2018), []; Joseph Young, Did ICOs Cause Ethereum to Drop by 44% in 2 Weeks by Dumping on the Market?, CCN (Aug. 14, 2018), []; c.f. Larry Cermak, ICOs Are Not Liquidating Their ETH Treasuries, Despite Price Declines. Yet., The Block (Nov. 20, 2018), []. If research continues to bear out this effect, it would only further support the kinds of regulatory responses that are appropriate in light of the “bubble” and “illicit demand” scenarios described above.

4. Smart Money. — Finally, it is possible that some ICO demand is driven by legitimately smart money. Anecdotal reports indicate that a wide range of old-growth VC firms, hedge funds, and family offices are, in fact, investing in ICOs. 305 See, e.g., Maiya Keidan & Jemima Kelly, Number of Crypto Hedge Funds Surges Amid Bitcoin Volatility, Reuters (Feb. 15, 2018), []; Olga Kharif & Camila Russo, Venture Capital Surges into Crypto Startups, Bloomberg (Mar. 26, 2018), []. Sometimes, they invest directly, as with the participation of Sequoia Capital, Andreessen Horowitz, and Union Square Ventures in the Filecoin ICO. 306 See Fitz Tepper, Filecoin’s ICO Opens Today for Accredited Investors After Raising $52M from Advisers, TechCrunch (Aug. 10, 2017), []. In other cases, they invest through intermediaries, whether due to regulatory restrictions on their holdings, or simply to work with other investors who are experts in the cryptoasset class. 307 See, e.g., Michael McDonald, Cryptocurrency Hedge Fund BlockTower Raises $140 Million, Bloomberg (Jan. 4, 2018),
2018-01-04/cryptocurrency-fund-blocktower-is-said-to-raise-140-million [].
In either case, these investors are the most likely to be engaging in fundamental analysis of ICOs, and thus the most likely to be scrutinizing smart contract code.

The presence of these investors in the market raises numerous questions for researchers and regulators alike. First, recall the colloquy with the ICO advocate in Part IV.A above. In a world where the code of “lex cryptographica” is not performing crucial investor-protection roles, we must look to traditional sources of protection. One of those is public regulation, but another is private gatekeeping. In the IPO world, for instance, the involvement of initial underwriters and primary market-makers channels pricing toward a fundamental valuation. 308 Steven E. Bochner, Jon C. Avina & Calise Y. Cheng, Wilson Sonsini Goodrich & Rosati, Guide to the Initial Public Offering 18–20 (8th ed. 2016), []. So, too, does the participation of institutional investors on the long and short sides of the market. 309 See id. at 29. These investors do the heavy analytical lifting that helps protect retail investors from succumbing to irrationality. And (most of the time) these investors read the investment contracts. 310 Cf., e.g., Matt Levine, You Can’t Always Read the Documents, Bloomberg (June 5, 2018), (on file with the Columbia Law Review) (explaining that arbitrageurs are the people who “read[ ] the bond documents so that everyone else doesn’t have to. It’s just that everyone else pays [them] to do it.”).

Are “smart money” investors playing similar channeling roles in the ICO market? It is hard to say. Maybe investors like Sequoia Capital are entering into side letters with ICO teams to contractually ensure that supply and vesting promises are upheld. 311 The Storj secondary vesting contract, discussed infra at note 627, would provide a different (and more transparent) way to accomplish the same end. Maybe the Andreessen Horwitzes of the world are scrutinizing modifiability and holding private corporate-governance fiduciary powers to rein in its use. They might also be embedding important information into market prices—for instance, information about ICO project activity, founding team reputation, and the quality of an ICO’s informational disclosures. 312 Notably, it is possible to short cryptoassets through some exchanges. It is unclear how broad or sophisticated the practice is. It certainly seems reasonable to suggest that shorting crypto is not as strong a mechanism for embedding contrarian views or information into prices as it is in securities and commodities markets. On the other hand, maybe they’re not. There is nothing stopping the “smart money” from riding cryptoasset volatility for all it’s worth. Bubbles are profitable for smart money, too, so long as they can cash out before the music stops. It would be valuable for future research to suss out the strategies and tactics that old-growth investors have been employing in this market.

From a regulatory perspective, the presence of smart money presents both a reason to care about preserving ICOs as a potentially valuable innovation and a potential lever to use. Indeed, one happy story that might be told a decade hence is that the ICO market of 2017 merely represented a period of growing pains, where reliable information sources and reputable gatekeepers were taking formation.

C. Whose Market Might It Become?

Based on the strong evidence that smart money is not leading this market, it can be tempting to cast doubt on all aspects of ICOs, including smart contracts. Though it will take future research to prove it, the ICO buy side today looks to us like a mixture of a bubble and an illicit market, with some smart money in the mix. And yet, this doesn’t mean that smart contracts are meaningless.

As John Maynard Keynes (didn’t) say, “The market can stay irrational longer than you can stay solvent.” 313 See Jason Zweig, Keynes: He Didn’t Say Half of What He Said. Or Did He?, Wall St. J.: Marketbeat (Feb. 11, 2011), []. But over a long enough time horizon, every bubble must pop. This leaves open the possibility that fundamental aspects of smart contract quality will, eventually, sway the outcomes of the market, with smart money at the helm.

In many ways, the ICO market of the past couple of years resembles the dot-com boom that took place at the end of the last century. That boom featured massive reallocations of investment capital toward nearly any company that proposed a business strategy that incorporated what was then called the “world wide web.” 314 See Elizabeth Demers & Baruch Lev, A Rude Awakening: The Internet Shakeout in 2000, 6 Rev. Acct. Stud. 331, 335 (2001). The same has been observed in relation to “blockchain” and “token”-based business plans in today’s climate. 315 See, e.g., Nicole Bullock & Robin Wigglesworth, Blockchain Fervour Evokes Memories of Dotcom Bubble, Fin. Times (Dec. 18, 2017),
content/40ec964a-e429-11e7-8b99-0191e45377ec (on file with the Columbia Law Review).
In the dot-com boom, investors also broke from fidelity to traditional investment metrics like price-to-earnings ratios, instead relying on new valuation drivers like the sheer number of “eyeballs” viewing a website or the “stickiness” of the website experience. 316 See id. Short-term performance on these metrics turned out to have little relation to a company’s long-term success. 317 See id.

It is hard not to see the rise of crypto-investment metrics like GitHub reputational stars, Twitter followers, and Instagram likes as representing a similarly problematic set of proxies for the possibility of network success. Financially, between the years of 1997 and 2000, internet stocks zoomed up and up, suggesting a new paradigm for corporate finance. The cryptoasset investor subcultures devoted to rejecting “fear, uncertainty, and doubt” may be in for a similarly painful fall to earth. Almost without question, both the dot-com market and the ICO market would have benefited from clearer and more reliable information environments to curb their excesses.

And yet, from a distance of twenty years, the economic follies of the late 1990s look less like utter madness, and more like a kind of overeager prescience. The clothing retailer may have gone belly-up, but e-commerce represents 40% of sales for even classic footprint companies like J.Crew, 318 See J. Crew, Revenues & Sales, eMarketer Retail,
company/data/5374f24d4d4afd2bb444660d/5374f2814d4afd824cc159d6/lfy/false/jcrew-revenues-sales [] (last visited Jan. 27, 2019).
and leading apparel startups like Everlane and Rent the Runway are decidedly “online-native.” 319 See Everlane, [] (last visited Jan. 27, 2019); Rent the Runway, [] (last visited Jan. 27, 2019). And though the grocery deliverer was widely derided as one of the biggest flops of the dot-com bust, 320 See 10 Big Flops:, CNN Money,
galleries/2010/technology/1003/gallery.dot_com_busts/2.html [] (last visited Jan. 27, 2019) (describing Webvan as the biggest flop of the dotcom bubble).
Amazon is pushing in that direction. 321 See Nick Turner, Selina Wang & Spencer Soper, Amazon to Acquire Whole Foods for $13.7 Billion, Bloomberg (June 16, 2017),
news/articles/2017-06-16/amazon-to-acquire-whole-foods-in-13-7-billion-bet-on-groceries (on file with the Columbia Law Review).
The  rush  for  eyeballs  has  become  a  rush  for  data,  and  online  shopping  continues  its  remarkably  paced  growth. 322 See Ali Hortaçsu & Chad Syverson, The Ongoing Evolution of US Retail: A Format Tug-of-War, 29 J. Econ. Persp. 89, 96 (2015) (putting e-commerce in context and documenting its nominal eleven-fold increase between 2000 and 2014).

Will we look back on the cryptoasset craze initiated in 2017 with similar curiosity twenty years from now? What will fall away as the ephemera of the moment, and what will work itself deeply into our economic institutions? Given the froth of the market, it can be tempting to focus on the gut-level question of whether the ICO market is a financial bubble, and if so, how regulators should address it.

But our view is that legal policymakers might do well to look beyond the bubble (and its certain fate). Bubbles misallocate capital to unproductive uses and divert the energy of those who respond to the capital’s call. They also harm unsavvy investors who fall prey to the salesmen who are selling a bull market. 323 See Sean Silverthorne, Inexperienced Investors and Market Bubbles, Harvard Bus. Sch.: Working Knowledge (Feb. 19, 2007),
inexperienced-investors-and-market-bubbles [].
These animal spirits cause huge amounts of mischief. It ought to be—and indeed is—the province of lawmakers and regulators to temper them. 324 One implication of our Article is that regulatory agencies might investigate the costs and benefits of requiring that cryptocurrencies match their marketing materials to their smart contracts. For further recommendations on potential disclosure requirements, see generally Chris Brummer, Trevor Kiviat & Jai R. Massari, What Should Be Disclosed in an Initial Coin Offering?, in Cryptoassets: Legal and Monetary Perspectives (forthcoming 2019) (on file with the Columbia Law Review); Usha Rodrigues, Semi-Public Offerings? Pushing the Boundaries of Securities Law (Univ. of Ga. Sch. of Law Legal Studies Research Paper No. 2018-30, 2018), (on file with the Columbia Law Review). And yet, we are convinced there is something useful to be learned from this first experiment in blockchain governance. Some firms are encoding their promises, though it’s not obviously rewarding to do so. Others are working to create intermediaries and certification regimes despite the contrary incentives present in a sharply rising market. Rewarding such good actors should be as important to regulators as punishing fraudsters.


The computer code at the heart of ICOs enables a new way of founding and governing enterprises. It allows entrepreneurs to adopt the ICO method, whether for good or ill. But while smart contract technology may be a driver—indeed, a definitional component—of the ICO phenomenon, we believe our study demonstrates in detail that smart contracts are also embedded in the social world. Just like Coca-Cola’s vending machines, ICOs are products of their time and place. They are built atop innovative “technical systems” that only recently came into being, and they are conducted within particular “communities of discourse” that happen to exist here and now. 325 See Suchman, supra note 24, at 92. To make sense of the technology’s role, scholars and regulators alike should study the unique forms that this embeddedness takes.

Our study demonstrates that the current structures—markets, formal organizations, and professional communities—where ICOs take place are producing a disconnect. Far from replacing (or seamlessly extending) law and norms, code is often falling short of expectations. It sometimes fails to deliver key investor protections, and can provide founders with significant, undisclosed authority to alter the terms of investor engagement. While ICOs are promoted by an industrial community that espouses technolibertarian beliefs in the power of “trustless trust” and carefully designed code, actual ICO practices do not uphold that ideology.

The disconnect we observe reflects the informality of the ICO world. Paper contracts and IPOs are joint products of law firms, investment banks, regulators, and a panoply of buy-side institutional intermediaries. Smart contracts and ICOs, at least at the moment, largely result from coders and entrepreneurs working at greater distance from risk-averse gatekeepers. Befitting their relatively informal production setting, smart contracts have been plagued with quality control problems. They suffer vast amounts of hacking, 326 See Irrera, More Than 10 Percent, supra note 258 (“More than 10 percent of funds raised through ‘initial coin offerings’ are lost or stolen in hacker attacks.”). and, as we show, standards as to how code is produced and made legible are wanting. 327 See supra Part III. Unlike the traditional legal world, there are currently no guilds or expert institutions governing smart contract coders’ practices to encourage quality. To withstand market ups and downs, the ICO community should invest in developing reliable institutions and promulgating best practices for the long term.

The informality of smart contract production leads to risks, to be sure, but it also breeds creativity. Lawyers tend to recycle language from agreement to agreement without much thought, but the smart contract community is full of “makers,” excitement, and avocational energy. This distinction suggests that the rate of innovation within smart contracting is driven by social factors, as well as technological ones. 328 Cf. Kevin Davis, Contract as Technology, 88 N.Y.U. L. Rev. 83, 86–88 (2013) (encouraging scholars to study innovation in contracting outside traditional domains). It also suggests that whether or not the ICO market is a bubble, professionals and hobbyists working on ICOs will be able to port smart contract governance into new settings over the years to come. As their ranks increase, the “no-reading” problem for smart contracts might also be tempered. Right now, one aspect of the disconnect we’ve identified is that so few people can read smart contracts. The community of people who are able to vet and audit smart contracts has much room to grow. As it does grow, and as existing institutions develop vetting capacity, we would expect to see quality improve.

We think that optimal regulation depends heavily on a better understanding of the buy side of the market. But whatever the fraction of investors who deserve protecting, our results show that computer code is not presently a reliable part of the ICO form. Our results strongly suggest that an increased presence of gatekeepers and regulators might help that process along. The SEC, with its newly developed “Cyber Unit,” 329 See Press Release, SEC, SEC Announces Enforcement Initiatives to Combat Cyber-Based Threats and Protect Retail Investors (Sept. 25, 2017),
press-release/2017-176 [].
is increasingly active in patrolling the scene. Other regulators, along with courts, will also contribute to increasing formalization of ICO code standards. So, too, will private standard-setting organizations within the industry itself. The rise of trusted intermediaries will be the next necessary step in any maturation of this novel financial form.

Appendix A

Summary of Top 50 2017 ICOs  330 We first developed the list of projects from By early 2019, that site no longer provided the relevant data. This chart thus uses a combination of other sources, primarily and

ICO Name Country 331 This column represents the country with which each ICO is associated. Countries are abbreviated using their International Organization for Standardization Alpha-3 code abbreviations. Announced Raise ($M) 332 This column represents the total amount of capital raised through each ICO, as reported by publicly available sources. ICO Date 333 This column represents the last day of the ICO period for each ICO. Initial Market Value ($M) 334 This column represents the first reported market capitalization for each ICO. The date is different for each ICO and is indicated parenthetically. Market Value 12/31/18 ($M) 335 This column represents the reported market capitalization for each ICO as of December 31, 2018.
Filecoin USA 336 Filecoin, ICOmarks, [] (last visited Jan. 24, 2019). $257.0 337 Id. 9/10/17 338 Id. N/A 339 Filecoin, CoinMarketCap, [] (last visited Jan. 24, 2019) (showing that no market capitalization has yet been announced). N/A 340 Id.
Tezos USA 341 Tezos, ICOmarks, [] (last visited Jan. 24, 2019). $232.0 342 Id. 7/13/17 343 Id. $1,138.6 344 Tezos, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of July 4, 2018). $281.0 345 Id.
EOS Stage USA 346 EOS, ICOmarks, [] (last visited Jan. 24, 2019). $185.0 347 Id. 6/11/17 348 Id. $654.9 349 EOS, CoinMarketCap,
?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of July 3, 2017).
$2,326.3 350 Id.
Paragon RUS 351 Paragon Coin, ICOmarks, [
Z3N6-XMUX] (last visited Jan. 24, 2019).
$50.0 352 Id. 10/15/17 353 Id. $18.7 354 Paragon, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Nov. 5, 2017). $10.9 355 Id.
Bancor ISR 356 Bancor, ICOmarks, [] (last visited Jan. 24, 2019). $153.0 357 Id. 6/12/17 358 Id. $98.8 359 Bancor, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of June 26, 2017). $38.6 360 Id.
Kin CAN 361 Kin, ICOmarks, [] (last visited Jan. 24, 2019). $98.0 362 Id. 9/26/17 363 Id. $88.0 364 Kin, CoinMarketCap,
?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of Sept. 27, 2017).
$28.7 365 Id.
Status CHE 366 Status, ICOmarks, [] (last visited Jan. 24, 2019). $100.0 367 Id. 6/20/17 368 Id. $194.9 369 Status, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of June 28, 2017). $59.8 370 Id.
Tron CHN 371 Tron, CoinGecko, [
R5RQ-HSNF] (last visited Jan. 24, 2019).
$70.0 372 Id. 9/2/17 373 Id. $29.3 374 Tron, CoinMarketCap,
?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of Sept. 28, 2017).
$1,254.5 375 Id.
TenX SGP 376 TenX, ICOmarks, [] (last visited Jan. 24, 2019). $80.0 377 Id. 6/24/17 378 Id. $115.4 379 TenX, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of July 8, 2017). $28.3 380 Id.
MobileGo USA 381 MobileGo, ICOmarks, [
DH2Z-L58N] (last visited Jan. 24, 2019).
$53.0 382 Id. 5/25/17 383 Id. $139.2 384 MobileGo, CoinMarketCap,
data/?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of June 13, 2017).
$51.3 385 Id.
KyberNetwork SGP 386 KyberNetwork, ICOmarks, [
AKN3-CJQA] (last visited Jan. 24, 2019).
$49.0 387 Id. 9/15/17 388 Id. $254.8 389 Kyber Network, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Sept. 24, 2017). $20.6 390 Id.
MCAP USA 391 MCAP, ICOmarks, [] (last visited Jan. 24, 2019). $44.3 392 Id. 5/7/17 393 Id. $29.9 394 MCAP, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of June 3, 2017). $0.1 395 Id.
Loopring CHN 396 Loopring, ICOmarks, [] (last visited Jan. 24, 2019). $45.0 397 Id. 8/16/17 398 Id. $42.4 399 Loopring, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Sept. 2, 2017). $31.5 400 Id.
Enigma USA 401 Enigma, ICOmarks, [
R2TX-CGSR] (last visited Feb. 2, 2019).
$45.0 402 Id. 9/11/17 403 Id. $51.9 404 Enigma, CoinMarketCap,
?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of Oct. 14, 2017).
$21.6 405 Id.
ICON JPN 406 ICON, ICOmarks, [] (last visited Feb. 2, 2019). $45.0 407 Id. 9/22/17 408 Id. $1,976.4 409 ICON, CoinMarketCap,
?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of Dec. 25, 2017).
$112.0 410 Id.
PeerBanks USA 411 PeerBanks, ICOmarks, [
GJ5N-GLVX] (last visited Feb. 2, 2019).
$42.6 412 Id. 9/22/17 413 Id. N/A 414 No market capitalization data for PeerBanks were available from publicly available coin-focused websites because PeerBanks has not yet been listed on an exchange. See PeerBanks IRA (@PeerBanks), Twitter (Feb. 8, 2018),
status/961816827281080321 [] (“We continue waiting for the transfers of your peerbanks to our waves wallet, please, until this does not end, we will not be able to advance to the next step, which is to place Peerbanks IRA in an exchange.”).
N/A 415 See supra note 414.
Electroneum GBR 416 Electroneum, ICOmarks, [https://] (last visited Feb. 2, 2019).
$40.0 417 Id. 10/20/17 418 Id. $349.8 419 Electroneum, CoinMarketCap,
historical-data/?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of Dec. 14, 2017).
$64.0 420 Id.
Aeternity BGR 421 Aeternity, ICOmarks, [] (last visited Jan. 24, 2019). $24.4 422 Id. 6/19/17 423 Id. $100.6 424 Aeternity, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Sept. 8, 2017). $90.6 425 Id.
Monetha LTU 426 Monetha, ICOmarks, [
GG2J-G67Y] (last visited Feb. 2, 2019).
$37.0 427 Id. 8/31/17 428 Id. $61.1 429 Monetha, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Sept. 6, 2017). $4.2 430 Id.
Basic Attention USA 431 Basic Attention Token, ICOmarks, [] (last visited Jan. 24, 2019). $15.0 432 Id. 5/31/17 433 Id. $171.0 434 Basic Attention Token, CoinMarketCap,
basic-attention-token/historical-data/?start=20130428&end=20190124 [
P3JK-3W92] (last visited Jan. 24, 2019) (reported as of June 1, 2017).
$156.9 435 Id.
Stox GIB 436 Stox, ICOmarks, [] (last visited Jan. 24, 2019). $33.0 437 Id. 8/4/17 438 Id. $36.0 439 Stox, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Aug. 5, 2017). $0.6 440 Id.
Civic USA 441 Civic, ICOmarks, [] (last visited Jan. 24, 2019). $33.0 442 Id. 6/22/17 443 Id. $60.0 444 Civic, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of July 17, 2017). $17.5 445 Id.
Request Network DEU 446 Request Network, ICOmarks, [https://] (last visited Jan. 24, 2019).
$32.9 447 Id. 10/17/17 448 Id. $38.7 449 Request Network, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Oct. 20, 2017). $15.4 450 Id.
Grid+ USA 451 Grid+, ICODrops, [] (last visited Jan. 24, 2019). $32.2 452 Id. 11/12/17 453 Id. $35.8 454 Grid+, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Nov. 13, 2017). $1.8 455 Id.
ChainLink USA 456 ChainLink, ICODrops, [] (last visited Jan. 24, 2019). $32.0 457 Id. 9/19/17 458 Id. $66.2 459 Chainlink, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Sept. 20, 2017). $101.3 460 Id.
Polybius EST 461 Polybius, ICOmarks, [] (last visited Jan. 24, 2019). $31.0 462 Id. 6/30/17 463 Id. $12.8 464 Polybius, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of July 15, 2017). $3.9 465 Id.
Unikoin Gold USA 466 Unikoin Gold, ICOmarks, [] (last visited Jan. 24, 2019). $28.6 467 Id. 10/23/17 468 Id. $15.8 469 Unikoin Gold, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Nov. 21, 2017). $3.0 470 Id.
DomRaider FRA 471 DomRaider, ICOmarks, [
5MH8-QHZK] (last visited Jan. 24, 2019).
$45.0 472 Id. 10/9/17 473 Id. $16.8 474 DomRaider, CoinMarketCap,
data/?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of Nov. 6, 2017).
$1.2 475 Id.
Blackmoon CYP 476 Blackmoon, ICOmarks, [] (last visited Jan. 24, 2019). $30.0 477 Id. 10/12/17 478 Id. $25.3 479 Blackmoon, CoinMarketCap,
historical-data/?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of Sept. 20, 2017).
$3.8 480 Id.
Bankera LTU 481 Bankera, ICOmarks, [] (last visited Jan. 24, 2019). $150.9 482 Id. 2/27/18 483 Id. N/A 484 No market capitalization data for Bankera were available from publicly available coin-focused websites. N/A 485 See supra note 484.
Agrello EST 486 Agrello, ICOmarks, [] (last visited Jan. 24, 2019). $35.0 487 Id. 8/17/17 488 Id. $34.5 489 Agrello, CoinMarketCap,
historical-data/?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of Sept. 9, 2017).
$3.3 490 Id.
Storj USA 491 Storj, ICOmarks, [] (last visited Jan. 24, 2019). $30.0 492 Id. 5/25/17 493 Id. $23.5 494 Storj, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of July 2, 2017). $19.3 495 Id.
Eidoo CHE 496 Eidoo, ICOmarks, [] (last visited Jan. 24, 2019). $28.0 497 Id. 10/16/17 498 Id. $25.5 499 Eidoo, CoinMarketCap,
?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of Oct. 17, 2017).
$22.3 500 Id.
Monaco CHE 501 Monaco, ICODrops, [] (last visited Jan. 24, 2019). $26.7 502 Id. 6/18/17 503 Id. $23.9 504, CoinMarketCap,
historical-data/?start=20130428&end=20190124 [] (last visited Jan. 24, 2019) (reported as of July 3, 2017).
$35.3 505 Id.
Power Ledger AUS 506 Power Ledger, ICOmarks, [
F4E6-7TA5] (last visited Jan. 24, 2019).
$13.2 507 Id. 10/6/17 508 Id. $76.6 509 Power Ledger, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Nov. 6, 2017). $32.0 510 Id.
Everex SGP 511 Everex, ICOmarks, [] (last visited Jan. 24, 2019). $26.7 512 Id. 8/31/17 513 Id. $31.5 514 Everex, CoinMarketCap, [] (last visited Feb. 2, 2019) (reported as of Oct. 10, 2017). $4.4 515 Id.
Decentraland ARG 516 Decentraland, ICOmarks, [
8QLC-AVFC] (last visited Jan. 24, 2019).
$24.0 517 Id. 8/8/17 518 Id. $18.7 519 Decentraland, CoinMarketCap,
historical-data/?start=20130428&end=20190203 [] (last visited Feb. 2, 2019) (reported as of Sept. 28, 2017).
$47.7 520 Id.
FunFair GBR 521 FunFair, ICOmarks, [] (last visited Jan. 24, 2019). $20.0 522 Id. 6/23/17 523 Id. $348.3 524 FunFair, CoinMarketCap, [] (last visited Feb. 2, 2019) (reported as of July 2, 2017). $22.9 525 Id.
BitClave USA 526 BitClave, ICOmarks, [] (last visited Jan. 24, 2019). $25.5 527 Id. 11/29/17 528 Id. $81.7 529 BitClave, CoinMarketCap, [] (last visited Feb. 2, 2019) (reported as of Jan. 16, 2018). $0.3 530 Id.
Tierion USA 531 Tierion, ICOmarks, [] (last visited Jan. 24, 2019). $25.0 532 Id. 7/28/17 533 Id. $81.6 534 Tierion, CoinMarketCap, [] (last visited Feb. 2, 2019) (reported as of Aug. 27, 2017). $5.0 535 Id.
OmiseGo SGP 536 OmiseGo, ICOmarks, [] (last visited Jan. 24, 2019). $25.0 537 Id. 7/23/17 538 Id. $42.6 539 OmiseGo, CoinMarketCap,
data/?start=20130428&end=20190203 [] (last visited Feb. 2, 2019) (reported as of July 15, 2017).
$189.5 540 Id.
Aragon ESP 541 Aragon, ICOmarks, [] (last visited Jan. 24, 2019). $25.0 542 Id. 5/17/17 543 Id. $36.9 544 Aragon, CoinMarketCap,
data/?start=20130428&end=20190203 [] (last visited Feb. 2, 2019) (reported as of May 19, 2017).
$11.2 545 Id.
0x USA 546 0x, ICOmarks, [] (last visited Jan. 24, 2019). $24.0 547 Id. 9/15/17 548 Id. $134.6 549 0x, CoinMarketCap,
?start=20130428&end=20190203 [] (last visited Feb. 2, 2019) (reported as of Aug. 16, 2017).
$163.9 550 Id.
Enjin Coin SGP 551 Enjin Coin, ICOmarks, [
UY3T-GJB4] (last visited Jan. 24, 2019).
$23.0 552 Id. 10/31/17 553 Id. $18.7 554 Enjin Coin, CoinMarketCap,
historical-data/?start=20130428&end=20190203 [] (last visited Feb. 2, 2019) (reported as of Nov. 15, 2017).
$28.6 555 Id.
BLOCKv USA 556 BLOCKv, ICOmarks, [] (last visited Jan. 24, 2019). $21.5 557 Id. 10/25/17 558 Id. $31.6 559 BLOCKv, CoinMarketCap, [] (last visited Feb. 2, 2019) (reported as of Dec. 7, 2017). $7.2 560 Id.
FinShi Capital SGP 561 FinShi Capital, ICOmarks, [
FT72-X3FL] (last visited Jan. 24, 2019).
$21.4 562 Id. 10/6/17 563 Id. N/A 564 No market capitalization data for FinShi Capital was available from publicly available coin-focused websites. N/A 565 See supra note 564.
UTRUST CHE 566 UTRUST, ICOmarks, [] (last visited Jan. 24, 2019). $20.0 567 Id. 11/20/17 568 Id. $68.1 569 UTRUST, CoinMarketCap, [] (last visited Feb. 2, 2019) (reported as of Dec. 29, 2017). $10.0 570 Id.
Target Coin IND 571 Target Coin, ICOmarks, [
QGL2-C2R2] (last visited Jan. 24, 2019).
$20.7 572 Id. 8/31/17 573 Id. $28.8 574 Target Coin, CoinMarketCap,
historical-data/?start=20130428&end=20190203 [] (last visited Feb. 2, 2019) (reported as of Oct. 7, 2017).
$0.8 575 Id.
ATB Coin USA 576 ATB Coin, ICOmarks, [
L7DV-MNDS] (last visited Jan. 24, 2019).
$20.4 577 Id. 9/1/17 578 Id. $35.2 579 ATBCoin, CoinMarketCap, [] (last visited Feb. 18, 2019) (reported as of Oct. 7, 2017). $0.4 580 Id.
Giga Watt USA 581 Giga Watt, ICOmarks, [
H4CW-CWNF] (last visited Jan. 24, 2019).
$15.0 582 Id. 7/31/17 583 Id. $4.3 584 Giga Watt Token, CoinMarketCap, [] (last visited Jan. 24, 2019) (reported as of Sept. 2, 2017). $1.6 585 Id.
Total N/A $2,584.0 N/A $6,969.7 $5,335.1

Appendix B

Summary of Code/Contract Audit

ICOName Scarcity Claimed (Y/N) 586 For individualized details related to claims of token scarcity for each ICO, see generally Appendix C, supra note 69. Scarcity Coded (Y/N) 587 All claims are evaluated individually based on each ICO’s smart contract. Individual contracts for each ICO are cited at infra notes 594645. Burning Claimed (Y/N) 588 For individualized details related to claims of token burning for each ICO, see generally Appendix C, supra note 69. Burning Coded (Y/N) 589 All claims are evaluated individually based on each ICO’s smart contract. Individual contracts for each ICO are cited at infra notes 594645. Vesting Claimed (Y/N) 590 For individualized details related to claims of token vesting for each ICO, see generally Appendix C, supra note 69. Vesting Coded (Y/N) 591 All claims are evaluated individually based on each ICO’s smart contract. Individual contracts for each ICO are cited at infra notes 594645. Modification Disclosed (Y/N) 592 For individualized details related to claims of token modifications for each ICO, see generally Appendix C, supra note 69. Modification Coded (Y/N) 593 All claims are evaluated individually based on each ICO’s smart contract. Individual contracts for each ICO are cited at infra notes 594645.
Filecoin 594 Filecoin’s ICO buyers received traditional investment agreements that promise delivery of cryptoassets in the future. See Bennett Garner, What Is Filecoin? Beginner’s Guide to the Largest-Ever ICO, CoinCentral (Feb. 20, 2018), []; see also Appendix C, supra note 69. To date, Filecoin has not made any smart contract code publicly available for audit on Etherscan. See Email from Marvin Ammori, Gen. Counsel of Protocol Labs, to David Hoffman, Professor of Law, Univ. of Pa. Law Sch. (Aug. 2, 2018) (on file with the Columbia Law Review) (confirming that the organization was not affiliated with any tokens labeled “Filecoin” available on Etherscan). N/A N/A N/A N/A
Tezos 595 Tezos ran simultaneous capital raising efforts on both the Bitcoin and Ethereum networks. Following the development of the independent Tezos blockchain, contributors were to be manually allocated “Tezzies” (the associated coin) on the new chain, in proportion to their contributions. The “ICO” contract on the Ethereum blockchain provided no such guarantee. See Steven O’Neal, The History of Tezos: The Infamous ICO Trying to Rebound Amidst Lawsuits and Disputes, CoinTelegraph (July 5, 2018), []. ScarcityNN BurningYN VestingYN ModificationNN
EOS Stage 1 596 EOSIO, Eos-Token-distribution, Github (July 5, 2017),
EOSIO/eos-token-distribution/blob/master/src/eos_sale.sol [].
ScarcityNN BurningNN VestingYN ModificationNN
Paragon 597 Paragon (PRG), supra note 178. ScarcityYY BurningYY VestingNN ModificationNN
Bancor 598 Bancor (BNT), Contract Code, Etherscan,
b3f13d689ff844b4ce37794d79a7ff1c#code [] (last visited Feb. 16, 2019).
ScarcityYN BurningYY VestingYN ModificationNN
Kin 599 Kin (KIN), supra note 154. ScarcityYY BurningNN VestingYY ModificationNN
Status 600 StatusNetwork (SNT), supra note 183. ScarcityYN BurningYY VestingYY ModificationYY
Tron 601 Tronix (TRX), Contract Code, Etherscan,
790e05390fc8295f4d3f60332c93bed42e2#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingYN ModificationNN
TenX 602 TenXPay (PAY), Contract Code, Etherscan,
628DB6B661D4C2aA833e95Dbe1A905B280#code [] (last visited Feb. 16, 2019).
ScarcityYN BurningNN VestingYN ModificationNN
MobileGo 603 MobileGo (MGO), Contract Code, Etherscan,
044Ac3c0C57051906dA938B54BD6557F212#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningYY VestingNN ModificationNN
KyberNetwork 604 KyberNetwork (KNC), Contract Code, Etherscan,
d5c2e2928dea5f71b9825b8b646686bd200#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningYY VestingYN ModificationNN
MCAP 605 MCAP (MCAP), Contract Code, Etherscan,
e682107d1e9defb0b5ee701c71707a4b2e46bc#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingNN ModificationNN
Loopring 606 Loopring (LRC), Contract Code, Etherscan,
e7c694f40c8202821edf525de3782458639f#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingNN ModificationNN
Enigma Catalyst 607 Enigma (ENG), Contract Code, Etherscan,
6b27b759c9893ce4f094b49ad28fd15a23e4#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningYN VestingYN ModificationNN
ICON 608 ICON (ICX), Contract Code, Etherscan,
a5f22694352c15b00323844ad545abb2b11028#code [] (last visited Feb. 16, 2019).
ScarcityNY BurningNY VestingYN ModificationNN
PeerBanks 609 PEERBANKS (IRA), Contract Code, Etherscan,
cef85b5d50a23a580919e72818fd2264c0f5#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingNN ModificationNN
Electroneum 610 This ICO was performed entirely off chain, prior to the launch of the Electroneum network. As a result, automated enforcement of the promises made in the whitepaper was not available. ScarcityYN BurningNN VestingYN ModificationNN
Aeternity 611 Aeternity (AE), Contract Code, Etherscan,
9a71b1d01849c0a95490cc00559717fcf0d1d#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningYN VestingYN ModificationNN
Monetha 612 Monetha (MTH), Contract Code, Etherscan,
dce16da2877f8c9e00544c93b62ac40631f16#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningYY VestingYY ModificationNN
Basic Attention Token 613 Basic Attention Token (BAT), Contract Code, Etherscan,
0x0d8775f648430679a709e98d2b0cb6250d2887ef#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingYY 614 BAT implements vesting via a secondary smart contract, to which tokens were transferred before the ICO. See BATSafe, Contract Code, Etherscan,
address/0x67fa2c06c9c6d4332f330e14a66bdf1873ef3d2b#code [] (last visited Jan. 25, 2019).
Stox 615 Stox (STX), Contract Code, Etherscan,
bea43baa3f7a6f765f14f10a1a1b08334ef45#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNY VestingYY ModificationNY
Civic 616 Civic (CVC), Contract Code, Etherscan,
5560054824ea6b0732e656e3ad64e20e94e45#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingYN ModificationNY
Request Network 617 Request (REQ), Contract Code, Etherscan,
afbb33998d8584a2b05749ba73c37a938a#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningYY VestingNY ModificationNN
Grid+ 618 Sale, Contract Code, Etherscan,
ef3bd7da53f47423862839823#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningYN VestingYY ModificationNN
ChainLink 619 ChainLink Token (LINK), Contract Code, Etherscan,
0x514910771af9ca656af840dff83e8264ecf986ca#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingNN ModificationNN
Polybius 620 This ICO constitutes a “proxy contract”: a primary smart contract with which users interact and a secondary smart contract whose code is incorporated by reference. The primary contract for this ICO is written in Solidity and stores the modifiable reference along with code controlling how the reference may be changed, thus modifying the overall functionality. The secondary smart contract is available on Etherscan but only in bytecode format. As all functionality other than modification is delegated to the secondary bytecode contract, we were unable to audit the scarcity, burning, and vesting whitepaper claims. See Polybius (PLBT), supra note 205. Unauditable Unauditable Unauditable ModificationYY
Unikoin Gold 621 Unikoin Gold (UKG), Contract Code, Etherscan,
0x24692791bc444c5cd0b81e3cbcaba4b04acd1f3b#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingNN ModificationNN
DomRaider 622 DomRaiderToken (DRT), Contract, Etherscan,
26941677c706cfecf6d3379ff01bb85d5ab#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingYY ModificationNN
Blackmoon Crypto 623 This ICO constitutes a “proxy contract.” For a detailed description of what constitutes a proxy contract, see supra note 620. As a result, for this ICO our audit was limited solely to claims related to Modification. See Blackmoon Crypto Token (BMC), supra note 200. Unauditable Unauditable Unauditable ModificationNY
Bankera 624 Banker Token (BNK), Contract Code, Etherscan,
0xc80c5e40220172b36adee2c951f26f2a577810c5#code [] (last visited Feb. 16, 2019).
ScarcityYN BurningNN VestingYN ModificationNN
Agrello 625 Delta (DLT), Contract Code, Etherscan,
b04f0a75970c1f81b4cbbfb606f#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingYN ModificationNN
Storj 626 Storj (STORJ), Contract Code, Etherscan,
0xb64ef51c888972c908cfacf59b47c1afbc0ab8ac#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningYY VestingYN 627 Storj is a hard case. It built a token-based vesting regime outside of its ICO smart contract. For the vesting contract and associated transaction log, see TokenVault, Contract Overview, Etherscan, [] (last visited Mar. 22, 2019). While we believe that the project team manually transferred tokens for lockup into that second contract, this was not an automatic process. Nor (as with BAT, supra note 614) was it completed manually in advance of the ICO. ModificationNY
Eidoo 628 Eidoo (EDO), Contract Code, Etherscan,
93198734ddaff8492d525bd258d49eb388e#code [] (last visited Feb. 16, 2019).
ScarcityYN BurningYY VestingYY ModificationNN
Monaco 629 Monaco (MCO), supra note 206. ScarcityYN BurningYN VestingYN ModificationNY
Power Ledger 630 Power Ledger (POWR), Contract Code, Etherscan,
2f8fc6bf59c85c527fec3740a1b7a361269#code [] (last visited Feb. 22, 2019).
ScarcityYY BurningNN VestingYN ModificationNN
Everex 631 Everex (EVX), Contract Code, Etherscan,
fa2c66b7af3eb0c0b782510816cbe4813b8#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingYN ModificationNN
Decentraland 632 Decentraland (MANA), Contract Code, Etherscan,
5d2fb29fb7d3cfee444a200298f468908cc942#code [] (last visited Feb. 16, 2019).
ScarcityNN BurningYY VestingYN ModificationNN
FunFair 633 FunFair (FUN), Contract Code, Etherscan,
0d8bdd9af5e606ae2232ed285aff190e711b#code [] (last visited Feb. 16, 2019).
ScarcityYN BurningYY VestingYN ModificationYY
Bitclave 634 BitClave (CAT), Contract Code, Etherscan,
67461d3f8db7496581774bd869c83d51c93#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningYN VestingYN ModificationNY
Tierion 635 Tierion Network Token (TNT), Contract Code, Etherscan,
address/0x08f5a9235b08173b7569f83645d2c7fb55e8ccd8#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingYN ModificationNN
OmiseGo 636 OmiseGO (OMG), Contract Code, Etherscan,
cd6EE289AccF82350c8d8487fedB8A0C07#code [] (last visited Feb. 16, 2019).
ScarcityYN BurningYN VestingYN ModificationYN
Aragon 637 Aragon (ANT), Contract Code, Etherscan,
236A07cf122663c4303350609A66A7B288C0#code [] (last visited Feb. 16, 2019).
ScarcityNN BurningNY VestingYY ModificationYY
0x 638 ZRX (ZRX), Contract Code, Etherscan,
2489571d322189246dafa5ebde1f4699f498#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingYN ModificationNN
Enjin 639 EnjinCoin (ENJ), Contract Code, Etherscan,
cbd94d3791c9250152bd8dfbdf380e2a3b9c#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingYY ModificationNN
BlockV 640 BLOCKv (VEE), Contract Code, Etherscan,|
0x340d2bde5eb28c1eed91b2f790723e3b160613b7#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningNN VestingYY ModificationNY
FinShi Capital 641 This ICO constitutes a “proxy contract.” For a detailed description of what constitutes a proxy contract, see supra note 620. As a result, for this ICO our audit was limited solely to claims related to Modification. See FinShi Capital Tokens (FINS) Contract Code, Etherscan, [] (last visited Feb. 16, 2019). Unauditable Unauditable Unauditable ModificationNY
UTRUST 642 UTRUST (UTK), Contract Code, Etherscan,
d6bf7f508c8224ce59ea1ef3d0ea3a38#code [] (last visited Feb. 16, 2019).
ScarcityYY BurningYY VestingYN ModificationYN
Target Coin 643 Target Coin (TGT), Contract Code, Etherscan,
da587eac229c9896d919abc235ca4fd7f72c1#code [] (last visited Feb. 16, 2019).
ScarcityYN BurningNN VestingNN ModificationNN
ATB Coin 644 ATB Coin received ICO contributions through a wallet address rather than a smart contract address. The Ethereum network therefore provides no restrictions on the use of the funds by the owners of the address. Contributors were to later receive tokens through a manual process following the development of the ATB network. 0x13CA7Bb198
aA6f8dbEe853742501B691497DE333, Overview, Etherscan,
98aa6f8dbee853742501b691497de333 (on file with the Columbia Law Review) (last visited Mar. 23, 2019).
Unauditable Unauditable Unauditable Unauditable
Giga Watt 645 WTT (WTT), Contract Code, Etherscan,
cb33e8f590d75c2d6ea4e6b0741a7494eda#code [] (last visited Feb. 16, 2019).
ScarcityYN BurningNN VestingYN ModificationYN