Value of Initial Coin Offerings in the Fashion Industry

In our model, a venture seeks capital through an initial coin offering (ICO). The ICO enables the venture to collect demand information from decentralized investors. The venture makes a tradeoff between ensuring the project’s success and forecasting market demand through token size and token price. We find that the higher the demand uncertainty and production cost, the greater the venture’s incentive to learn from its investors. To identify when the venture has an incentive to raise funds through an ICO, we compare it with traditional bank financing and analyze the venture’s preference between the two financing options. The results show that when demand uncertainty is high, an ICO can provide both financing and information benefits, whereas when demand uncertainty is low, although the venture does not collect information through an ICO, it can still get financing benefit. Only when demand uncertainty is intermediate, the venture prefers bank financing. In addition, we find that although the revenue sharing effect of the ICO results in an underinvestment issue, it can also alleviate the loss caused by the increased cost of production. Therefore, with high information accuracy, as production cost goes up, ICOs become more attractive than bank financing for the venture.