April 5, 2021

1,600 ICOs Give Insight Into Future Of Capital Raises

While reviewing more than 1600 English speaking Whitepapers on Initial Coin Offering (ICO) campaigns that took place between January 2017 and December 2018, researchers from two US-based universities investigated various signals that might have impacted the outcome of the fundraising process.

While reviewing more than 1600 English speaking Whitepapers on Initial Coin Offering (ICO) campaigns that took place between January 2017 and December 2018, researchers from two US-based universities investigated various signals that might have impacted the outcome of the fundraising process.

For those unfamiliar with Initial Coin Offerings, which reached their peak in 2017-18, they represent a crowd-based sale of so-called ‘Tokens.’ It has been an often disputed mechanism to raise external funding while advertising an emission of crypto-currency based Tokens to investors that have been distributed on the Blockchain. ICOs remain risky ventures and it is notoriously hard to identify those that have any “fundamental” value. It is then hardly surprising that less than 40% manage to obtain any funding.

According to the study, the key to identifying promising ICOs lies in the language. ICO project owners who focused on a comprehensive description of the technological core behind their Tokens were 20% more likely to obtain funding as well as 40% more likely to list their tokens on CoinMarketCap, one of the leading price-tracking websites for crypto assets. Last but not least, these ICOs saw their prices increase 24% more than average over 300 days after being listed.

It is no coincidence that many multinationals employ or hire professional teams to ensure the usage of proper language in their quarterly or annual reports. Such editorial work goes way beyond proofreading, spelling and fact -checking; it focuses on the usage of a particular language as well as increase or decrease of certain levels of depth in order to correct or even modify particular messages. Corporate language is also increasingly coming under the scrutiny of so-called Natural Language Processing (NLP) algorithms - by one estimate, the market for NLP was worth $8.6 billion in 2018 and projected to grow at an annualized rate of 32%.

NLP originated at the intersection of computer science and linguistics while increasingly making its way into finance. However, the focus so far has mainly been on large companies and the analysis of their disclosure, news coverage and to some extent social media channels. Research of projects operating in the field of Decentralized Finance (DeFi) remains scarce.

In a recent study conducted by Yukun Liu from the University of Rochester, together with Jinfei Sheng and Wanyi Wang, both at the University of California Irvine, the researchers found a positive relationship between the use of technical language in an ICO Whitepaper and the outcome of both the funding round as well as the survivability and performance of the ICO campaign afterward.

A ‘White Paper’ represents a publicly accessible authoritative report focusing on an ICO campaign that might but does not have to address: project objectives, includes its road-map, project milestone, describe the team behind a project, use of proceeds, time schedule and a technical description of each project with initial similarities to prospectus law. The term ‘White paper’ originated from a period in which reports issued by public authorities or government were coded by color to anticipate types of secrecy and importance. White coloured reports have been dedicated to the general public, granting it full access.

Differently to a prospectus that follows a rigorous structure and are supervised by relevant authorities, ICO Whitepapers do not always follow pre-structured forms, which complicates predefined comparisons. The researchers used machine learning techniques to get around this problem and come up with coherent measures of technical sophistication of the language in ICO Whitepapers.

Shown below is the output of one of the techniques used by the researchers, known as “word embedding,” which groups individual words into topics.

ICO Whitepapers featuring the usage of language in a funding round.

Visualising topics in ICO Whitepapers


At first glance, most of these topics are potentially relevant and ICO founders tend to spend the most time on the “Roadmap” and “Name/Brand” for their funding project. The size of each circle indicates the proportion of words in Whitepapers dedicated to each topic.

Despite salient assumptions, the diligent language in the Business, Marketing or even the section displaying the Team behind the project had no effect on the outcome of funding round or its survivability only the technical topics, marked in violet, turned out to have a significant bearing of ICO performance. Such significant bearing was able to win over investors’ hearts and potentially connected to those hearts - their investment wallets.

Whenever when entrepreneurs behind an ICO project, decided to use more technical language in their White Paper, meaning more frequent use of the following phrases or featuring the following components:

  • Information - user, data, datum, contract, transaction, information, process, access, wallet, node, public, key
  • Blockchain - platform, blockchain, system, network, base, smart, development, application, ethereum, chain, protocol, design, developer, open, software
  • Algorithm - model, block, follow, level, different, bitcoin, function, proof, algorithm

Their chances of obtaining funding went up by 20% and subsequent listing on CoinMarketCap was 40% more likely. The highlighted terms may appear  generic but they are, in fact, meaningful - the authors show this by carefully cross-checking the use of technical language in the Whitepaper with the quality of the source code posted on GitHub a platform providing repository hosting service.

“DeFi executives similar to their colleagues from traditional companies often underestimate the impact  of language in their communication. In my own research, I am often surprised by how much a seemingly innocuous choice of words can affect financial markets. Machine learning techniques can be very helpful in identifying such surprising patterns.’ Michał Dzieliński, Assistant Professor at Stockholm Business School and Program Chair of the Future of Financial Information Conference, where the paper was recently presented.

For traditional companies, research into financial communication recommends focusing on the company's products over other aspects. For FinTech companies, it appears that focusing on technology is similarly important and they might consider to polish their technical language in order to increase their chances of survival and market success.

Naturally the usage of language might be far from sole responsibility determining the success of an ICO campaign as not only a dress makes a man. On the contrary a well-described ICO white paper featuring a comprehensive technical description of a Token might have helped or tricked investors into investing in projects which business proposal might have performed below expectations.

Similar to banks that often banned words like ‘bankruptcy’ in their credit offering or insurance companies banning the word ‘death’ from their life insurance offering, the outcome of this research displays a niche for financial communication editors for projects focusing on decentralized finance.

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