Fear sells: On the sentiment deceptions and fundraising success of initial coin offerings

Retrieving information from an intensive hand-collected whitepaper data library covering 5,033 ICOs launched before 2020, we analyze the determinants of ICO success as measured by the amount of raised funding. We assess the sentiment and readability in ICO whitepapers in addition to other information disclosures. Whereas we do not find any evidence for that the riskiness of ICO projects would lower the predicted amount of raised funding, our results strongly suggest that ICO investors are largely guided by emotions when making investment decisions. Contrary to earlier literature, we find a weak association between quality signals of whitepapers and its success.© 2023 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).fi=vertaisarvioitu|en=peerReviewed

Essays on the New Blockchain-Based Digital Financial Market : Risks and Opportunities

This doctoral thesis consists of five original essays on the risks and opportunities of the new blockchain-based digital financial market. The purpose of this dissertation is to analyze, identify, and, if possible, predict some of the major risks in the market for blockchain-based digital assets. It analyzes how crypto-specific characteristics are associated with solvency risk, sustainability risk, seclusion risk, and sentiment risk. On top of that, it also sheds light on the opportunity side of this financial innovation. The first essay of this dissertation specifically focuses on cryptocurrency for solvency risks. To forecast potential cryptocurrency default at an early stage, this study focuses on variables that are part of the information set of the investor 1 month at most after the start of trading for a cryptocurrency. The results of this research show that bankruptcies among cryptocurrencies are predictable. The second essay explores energy risk as a fundamental market-driving force for the pricing of cryptocurrency. Cryptocurrencies using a high-energy-consumption consensus protocol are riskier than others because their mining costs are more exposed to changes in energy price. Surprisingly, the study finds that energy consumption does not seem to play a role in pricing cryptocurrency. The third essay hypothesizes that privacy coins form a distinct submarket in the cryptocurrency market, shedding light on seclusion risk. It shows that privacy coins and non-privacy coins are two distinct asset markets within the cryptocurrency market. The fourth essay is about news media sentiment risk. It explores whether news media sentiments have an impact on Bitcoin volatility. It also differentiates financial sentiment and psychological sentiment and finds that financially optimistic investors are driving the Bitcoin market. On the other hand, the fifth essay in this dissertation analyzes opportunities, especially the funding opportunity in the widely known category of new digital assets defined as crypto tokens. It analyzes the determinants of the success of initial coin offerings and finds that initial-coin-offering investors are largely guided by their emotions when making investment decisions. Surprisingly, regulatory framework has not yet become a priority among policymakers. Therefore, this doctoral dissertation not only facilitates future research, but also helps regulators in shaping the future of blockchain-based financial technologies.Tämä väitöskirja koostuu viidestä esseestä, jotka käsittelevät uuden lohkoketjupohjaisen digitaalisen rahoitusmarkkinan riskejä ja mahdollisuuksia. Väitöskirjan tarkoituksena on analysoida, tunnistaa ja mahdollisuuksien mukaan ennustaa joitakin lohkoketjupohjaisten digitaalisten varojen markkinoiden suurimpia riskejä. Siinä analysoidaan, miten kryptovaluuttakohtaiset ominaisuudet liittyvät vakavaraisuusriskiin, kestävyysriskiin, eristäytymisriskiin ja sentimenttiriskiin. Tämän lisäksi se valottaa myös tämän rahoitusinnovaation mahdollisuuksia. Tämän väitöskirjan ensimmäisessä esseessä keskitytään erityisesti kryptovaluuttaan maksukyvyttömyysriskinä. Tässä tutkimuksessa keskitytään muuttujiin, jotka ovat sijoittajan saatavilla korkeintaan 1 kuukausi sen jälkeen, kun kaupankäynti kryptovaluutalla on alkanut. Tämän tutkimuksen tulokset osoittavat, että kryptovaluuttojen konkurssit ovat ennustettavissa. Toisessa esseessä tutkitaan energiariskiä markkinoita ohjaavana voimana kryptovaluutan hinnoittelussa. Kryptovaluutat, jotka käyttävät paljon energiaa kuluttavaa konsensusprotokollaa, ovat muita riskialttiimpia, koska niiden louhintakustannukset ovat alttiimpia energian hinnan muutoksille. Yllättäen tutkimuksessa todetaan, että energiankulutuksella ei näytä olevan merkitystä kryptovaluuttojen hinnoittelussa. Kolmannessa esseessä hypoteesina on, että yksityisyyskolikot muodostavat erillisen alamarkkinan kryptovaluuttamarkkinoilla, ja tutkimus tarkastelee näiden eristäytymisriskiä. Siinä osoitetaan, että yksityisyyskolikot ja ei-yksityisyyskolikot ovat kaksi erillistä omaisuuserämarkkinaa kryptovaluuttamarkkinoilla. Neljäs essee käsittelee uutismedian sentimenttiriskiä. Siinä tutkitaan, vaikuttaako uutismedian sentimentti Bitcoinin volatiliteettiin. Siinä myös erotetaan toisistaan taloudellinen sentimentti ja psykologinen sentimentti ja todetaan, että taloudellisesti optimistiset sijoittajat ohjaavat Bitcoin-markkinoita. Väitöskirjan viidennessä esseessä analysoidaan mahdollisuuksia, erityisesti rahoitusmahdollisuuksi, liittyen laajalti tunnettuihin digitaalisiin tokeneihin. Siinä havaitaan, että näihin omaisuuseriin sijoittavat sijoittajat toimivat pitkälti tunteidensa ohjaamina sijoituspäätöksiä tehdessään. Yllättävää kyllä, sääntelykehyksestä ei ole vielä tullut poliittisten päättäjien prioriteettia. Siksi tämä väitöskirja ei ainoastaan tue tulevaa tutkimusta, vaan auttaa myös viranomaisia lohkoketjupohjaisten rahoitusteknologioiden tulevaisuuden määrittelyssä.fi=vertaisarvioitu|en=peerReviewed

AI-powered Fraud Detection in Decentralized Finance: A Project Life Cycle Perspective

In recent years, blockchain technology has introduced decentralized finance (DeFi) as an alternative to traditional financial systems. DeFi aims to create a transparent and efficient financial ecosystem using smart contracts and emerging decentralized applications. However, the growing popularity of DeFi has made it a target for fraudulent activities, resulting in losses of billions of dollars due to various types of frauds. To address these issues, researchers have explored the potential of artificial intelligence (AI) approaches to detect such fraudulent activities. Yet, there is a lack of a systematic survey to organize and summarize those existing works and to identify the future research opportunities. In this survey, we provide a systematic taxonomy of various frauds in the DeFi ecosystem, categorized by the different stages of a DeFi project's life cycle: project development, introduction, growth, maturity, and decline. This taxonomy is based on our finding: many frauds have strong correlations in the stage of the DeFi project. According to the taxonomy, we review existing AI-powered detection methods, including statistical modeling, natural language processing and other machine learning techniques, etc. We find that fraud detection in different stages employs distinct types of methods and observe the commendable performance of tree-based and graph-related models in tackling fraud detection tasks. By analyzing the challenges and trends, we present the findings to provide proactive suggestion and guide future research in DeFi fraud detection. We believe that this survey is able to support researchers, practitioners, and regulators in establishing a secure and trustworthy DeFi ecosystem.Comment: 38 pages, update reference

“Invest in crypto!”: An analysis of investment scam advertisements found in Bitcointalk

This paper investigates the evolution of investment scam lures and scam-related keywords in the cryptocurrency online forum Bitcointalk over a period of 12 years. Our findings show a shift in scam-related keywords found within posts in the forum, where “Ponzi” was the most popular and most frequently mentioned in 2014 and 2018 and “HYIP” appeared more often in 2018 and 2021. We also identify that the financial principle is the tactic more likely to be used to lure people into investment scams from 2015 until 2017, coinciding with the period when “Ponzi” was the most commonly found keyword. This is followed by a transition to the authority and distraction principles from 2018 until 2022, which also coincides with the increase of popularity of “HYIP”. We collect more than 17.8M posts from 399k threads from the forum from July 2010 until June 2022. Our longitudinal analysis shows the popularity transition between subforums and keywords across time. We design a categorisation criteria and annotate 4,218 posts from 2,630 threads based on it. We then use the annotated sample to train four machine learning statistical models. We use the best performing model to classify all 281k English-language threads into four categories: overt scams, potential scams, scam comments and not investment scam related. We analyze the frequency changes of scam-related threads across the 12 year period and observe that overt and potential scams peaked in 2015 and 2018 respectively. We see that potential scams also increased during the COVID-19 pandemic. We use heuristics to pinpoint the types of cryptocurrencies most frequently used within scam advertisements. Bitcoin is most commonly found in potential scams while Ethereum appears more often than other cryptocurrencies in overt scams. We use machine learning classifiers to identify the scam actor types behind the posts categorised as overt and potential scams. We also classify the type of lure used by scammers. Our results indicate that the time principle is not a tactic used as frequently as expected. Finally, we observe the influence of the pandemic in the strategies used to lure victims, reflected in higher than expected use of the kindness principle in 2021 and 2022

The effect of lockup and persuasion on online investment decisions: an experimental study in ICOs

Many firms use social media (SM) to solicit online investments. In this study, we examine the interaction between SM attributes and online-investment attributes to determine how this interaction shapes users’ investment decisions. Specifically, we investigate initial coin offerings (ICOs) as an application domain of distributed ledger technology for peer-to-peer investment. We use signaling theory to develop a context-specific explanation for how the interplay of persuasion signals found in SM and technology-enforced lockups shapes individuals’ ICO investment decisions. To evaluate this interplay, we conducted a 2 × 2 factorial experiment with 473 participants. The results show that when an investment does not require a technology-enforced lockup, persuasion signals encourage investments in ICOs; however, when an investment requires a technology-enforced lockup, persuasion signals do not affect investments in ICOs. Furthermore, our analyses suggest that combining a technology-enforced lockup and persuasion signals reduces the ICO’s plausibility. This is the first study to investigate how the willingness to invest in ICOs is influenced by the relationship between technology-enforced lockups and persuasion signals. The findings have practical implications for individuals attempting to make sound decisions on ICO investments, policymakers regulating online investments, and firms seeking to attract investors

Coordinating crowdfunded innovation projects in the cryptocurrency sector through narratives

Initial Coin Offerings (ICOs) are innovation projects that serve as a crowdfunding mechanism. This study discusses the need to examine how cryptocurrencies are created, particularly through ICOs. ICO projects are described as radical, multistakeholder innovation projects that involve communicating potential value and use of cryptocurrency between project teams and crowdfunders through whitepapers and YouTube videos. The study aims to identify useful dictionaries containing active signals and cues used in successfully crowdfunded ICO narratives from project teams (Marketer Generated Content) and crowdfunders’ comments (User Generated Content). The literature review highlights three gaps: a lack of understanding the effectiveness of specific signals/cues and crowdfunders' trust, a lack of diversification in signal/cue specific constructs, and a lack of understanding of positive tone signals/cues in the ICO context. The study tests the use of specific signals and cues. It does so with dictionaries that have been validated for academic studies in Marketer Generated Content (MGC) and then correlates with their use in User Generated Content (UGC) in ICOs. The study collected and analysed textual data on 20 ICOs through YouTube video transcripts, comments, and whitepapers, and used Computer Aided Text Analysis (CATA) software and customised digital dictionaries. The analysis aimed to identify patterns of cues/signals in project and crowdfunder narratives. The selection of the dictionaries was based on their relevance to the signals/cues being measured and bundled into constructs for analysis using CATA software. Overall, the study shed light on the coordination practices of ICOs, identifying the dictionaries that suit ICOs, and test and confirm hypotheses using signalling theory to address the gaps in the literature. The finding was that positive signals and cues from the project instigator’s whitepapers and video-transcripts have been used in crowd conversations in YouTube comment-sections, but much less so negative ones. Eight useful academic dictionaries have been identified. This study can be extended to other studies to explore further the issue of narrative coordination of innovation projects, but it also contributes to practitioners with practical application in an effort to coordinate ICO crowdfunding

Detecting and Understanding Textual Deepfakes in Online Reviews

Deepfakes endanger business and society. Regarding fraudulent texts created with deep learning techniques, this may become particularly evident for online reviews. Here, customers naturally rely on truthful information about a product or service to adequately evaluate its worthiness. However, in the light of the proliferation of deepfakes, customers may increasingly harbour distrust and thereby affect a retailers business. To counteract this, we propose a novel IT artifact capable of detecting textual deepfakes to then explain their peculiarities by using explainable artificial intelligence. Finally, we demonstrate the utility of such explanations for the case of online reviews in e-commerce

Cryptocurrency Research in the Field of Information Systems: A Literature Review and its Implications for Sharing Economy Research

Cryptocurrency has been widely adopted as an asset for investment with the rise of numerous well-known cryptocurrency exchanges. Practitioners and enthusiasts have begun to promote cryptocurrency as a means of payment in the sharing economy. This new trend has also received attention from academia, especially among information systems (IS) scholars. Thus, the purpose of this paper is to consolidate knowledge about cryptocurrency in the field of IS through a systematic literature review and provide insights for researchers to seek opportunities for cryptocurrency research in the context of the sharing economy

Success determinants of Initial Coin Offerings (ICOs)

Fintech companies have been surging taking advantage of the current technological developments and have been challenging traditional incumbents. Disruptive ventures financed by cryptocurrencies are one of the main topics related to technological developments, capable of completely eliminating the need for a third-party intervenient and reducing the gap between investors and promoters. The purpose of this thesis is to identify the main impacts that fintech companies have on the business models of traditional banking/financial institutions and to focus on the success factors of disruptive and highly technological Initial Coin Offerings (ICO) projects, particularly, on the human capital factors. In order to do that, the thesis is divided into three main studies, each one of them focused on a particular topic. The methods used in this thesis are mixed as a qualitative approach was adopted through a systematic literature review, and a quantitative approach was performed by building several econometric models. This thesis concludes that fintechs cannot be considered complete substitutes to the traditional services yet. Nevertheless, they are posing incumbents challenges and exposing the weaknesses of their business models. The banking/financial institutions need to urgently adapt their business models in order to remain competitive, and most of them already accepted this challenge. The ICO projects also present a disruption and a step forward in the democratization of the financial investments. This study identified a wide range of success factors influencing the outcome of an ICO project. The success factors might be divided into categories according to their scope: (i) project; (ii) campaign; (iii) social networks; (iv) human capital. It is concluded that several factors have a real impact in the outcome of the projects, such as, the existence of financing thresholds, the quality of the whitepaper, the existence of a secondary market and bonus schemes, the price of the tokens, the price of cryptocurrencies, the good management of social networks, the promoters’ geographic location, their networks, the size of the teams, external ratings attributed to the project and to the team. In terms of theoretical contributions, this study added a contribution to the still scarce literature on ICO projects and to two theories, namely, the signaling theory and Human Capital Theory (HCT). The managerial implications concern mainly the assessment of the quality of a project by the investors and the need for regulation by supervisors.As empresas fintech surgiram tomando partido dos atuais desenvolvimentos tecnológicos tendo desafiado os atuais atores do mercado. Projetos disruptivos financiados nomeadamente por cripto moedas são um dos tópicos relacionados com o desenvolvimento tecnológico e capazes de eliminar a necessidade para o envolvimento de terceiros na mediação financeira reduzindo assim o hiato entre investidores e promotores. O propósito desta tese é o de identificar os principais impactos que as empresas fintech têm nos modelos de negócio das empresas financeiras já estabelecidos no mercado. Terá um foco especial nos fatores de sucesso dos projetos baseados na blockchain denominados Initial Coin Offerings (ICOs), em particular, os fatores relacionados com o capital humano. Assim, a tese está dividida em três estudos principais com focos diferentes. A metodologia usada nesta tese é de métodos mistos: uma metodologia qualitativa foi usada na revisão sistemática da literatura; e uma metodologia quantitativa foi usada na construção e estimação de modelos econométricos, tendo por base microdados de 428 projetos de ICOs do setor bancário. Esta tese conclui que as fintechs não podem ser ainda consideradas substitutos dos serviços financeiros tradicionais. Contudo, estas colocam desafios e expõem as fraquezas dos modelos de negócio tradicionais. A indústria financeira necessita de adaptar urgentemente os seus modelos de negócio para se manter competitiva. Este desafio já foi aceite por várias empresas. Os ICOs causam disrupção e são um grande passo para a democratização dos investimentos financeiros. Este estudo identificou um conjunto alargado de fatores de sucesso que influenciam o resultado final destes projetos. Os fatores podem agrupar-se em categorias: (i) projeto; (ii) campanha; (iii) redes sociais; (iv) capital humano. Os fatores que esta tese comprovou contribuírem para o sucesso de um projeto são os seguintes: pré-existência de limites de financiamento; a qualidade do whitepaper; a existência de um mercado secundário e esquema de bonificações; o preço dos tokens; o preço das cripto moedas; a boa gestão de redes sociais; a localização geográfica e a rede de contactos dos promotores; o tamanho das equipas; ratings externos atribuídos ao projeto e à equipa.No que diz respeito às contribuições teóricas, esta tese contribuiu para a escassa literatura no tema dos ICOs e para duas teorias, nomeadamente a siganling theory e Human Capital Theory (HCT). As contribuições práticas deste estudo relacionam-se com a avaliação da qualidade do projeto e a necessidade premente dos reguladores tomarem medidas nestes mercados

Tratamiento penal de las defraudaciones con bitcoins.

In this study, it will be studied various problematic issues about the methods of scams with bitcoin (cloud mining and pyramid scheme), the legal classification that is given today to these crimes, and their criminal legal analysis. In the same way, the relation of Spanish jurisprudence and the recent pronouncement of Supreme Court on this subject. The growing use of bitcoin has put its legal regulation in the world in the spotlight. It does not have a specific law, consequently, it makes its use for criminal purposes attractive. It is recognized the urgent need for a modern regulation. However, nothing has been done about it in most countries, including Spain, at the moment, is applying the current laws to provide a legal solution.En el presente trabajo se analizan diversas cuestiones problemáticas sobre las modalidades de estafas con bitcoin (estafa piramidal y minería en la nube), entre ellas la tipificación legal que se le da hoy en día a esos delitos y su análisis jurídico penal. Asimismo, hago referencia a la jurisprudencia española relacionada y el reciente pronunciamiento del Tribunal Supremo sobre el tema. El creciente uso de criptomonedas, concretamente, del bitcoin ha hecho que se haya puesto en el punto de mira su regulación legal en el mundo. Este no cuenta con una ley concreta, en consecuencia, hace que sea atractiva su utilización para fines delictivos (blanqueo de capitales, el narcotráfico, tráfico de órganos, etc.) Se ha reconocido la urgencia de estipular su regulación, pero no se ha hecho nada al respecto en la mayoría de los países, incluido en España, que, de momento, está aplicando las leyes actuales para dar una solución jurídica