Financing Inventory Through Initial Coin Offerings (ICOs)
By Rowena Jingxing Gan, The Wharton School, University of Pennsylvania, USA, ganj@wharton.upenn.edu | Gerry Tsoukalas, The Wharton School, University of Pennsylvania, USA, gtsouk@wharton.upenn.edu | Serguei Netessine, The Wharton School, University of Pennsylvania, USA, netessin@wharton.upenn.edu
Abstract
Initial Coin Offerings (ICOs) are an emerging form of fundraising for Blockchain-based startups. We propose a simple model of matching supply with demand with ICOs by companies involved in production of physical products. We examine how ICOs should be designed—including optimal token floating and pricing of utility tokens—in the presence of product risk and demand uncertainty, make predictions on ICO failure, and discuss the implications on firm operational decisions and profits. We show that in the current unregulated environment, ICOs lead to risk-shifting incentives (moral hazard), and hence to underproduction, agency costs, and loss of firm value. These inefficiencies, however, fade as product margin increases and market conditions improve
Emerging Advances in Supply Chain Finance and FinTech Innovations
Advances in Supply Chain Finance and FinTech Innovations examines three themes:
Financing Issues in Supply Chains look into popular working capital management financing practices: trade credits and guarantor practices including advanced trade credit practices in supply chains, guarantor financing practices for capital constrained retailers, and innovative practices of joint financing of capital constrained firms by a bank.
FinTech Innovations for Supply Chains examines business model innovations for supply chain financing supported through new platform technologies (such as blockchain), and simple financial technologies effectively implemented for high impact in supply chain risk management.
Advances in Risk Management of Operational Systems provide state-of-the art thinking on many risk issues in supply chain operations including disruption strategies over the product life cycle, the production planning complexities for a capital constrained manufacturer that uses Inventory Based Financing (IBF) scheme to fund its working capital needs, capacity procurement decision, capacity planning in the presence of demand and price uncertainty, and valuing complex real options in dynamic operational settings.
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Foundations and Trends® in Technology, Information and Operations Management, Volume 14, Issue 1-2 Special Issue: Advances in Supply Chain Finance and FinTech Innovations
See the other articles that are also part of this special issue.