ICO Whitepaper Risk Disclosures

ABSTRACT

This study examines the nature, determinants, and relevance of the risk disclosures in cryptocurrencies’ Initial Coin Offering (ICO) whitepapers. We measure risk disclosures with a self-constructed cryptocurrency-specific risk keyword list and the Loughran and McDonald (2011) general uncertainty wordlist. We find that ICO whitepapers exhibit a more uncertain tone for stablecoins and ventures with engaged advisors, suggesting litigation concerns contributing to more cautious presentations. The tone is less uncertain for ICOs with presale conditions, and risk disclosures are lower for teams with prior ICO experience. Cryptocurrencies with more uncertain-tone whitepapers are more likely to achieve listing success. Greater risk disclosures are associated with lower post-offering return volatility and higher longer-term buy-and-hold returns, but not with offering-day returns. We explain this intriguing phenomenon by proposing that in a largely unregulated market, extensive risk disclosures signal that the creators have anticipated risks and constructed mitigants thus lowering ex post volatility.

Data Availability: Data are available from the public sources cited in the text.

JEL Classifications: G10; G14; M40; M41.