Electronic copy available at: Initial Coin Offering (ICOs) Risk, Value and Costin Blockchain Trustless crypto-marketsPercy Venegas ([email protected])Economy MonitorAbstractOn July 25th2017 the SEC published guidance indicating that US securities laws mayapply to token sales, effectively recognizing crypto coins associated with entitiessuch as the DAO as a new asset class. In Mutual Distributed Ledgers, or Blockchains,trust is embedded and no explicit chain of trust is necessary. Smart contractsrunning on a Blockchain allow to create objects with various degrees of liquidity andto automate the operations of a fund, enabling trustless crypto markets. Despitegreat promise, the sources of uncertainty and risk in such trustless settings are notyetwellunderstood;forinstance“TheDAO”(DecentralisedAutonomousOrganisation), which was the world’s first decentralised investment fund, went frombeing the largest crowdfunding event in history to get about a third of its assetscompromised due to an attack from a shareholder. The dual nature of money sharedby a Blockchain calls for a novel approach: a DAO is a listed entity by default, and itsprojects might be financial instruments as well, so we use network correlations tostudyportfolioriskdiversification.Furthermore,automatedcorporationsareessentially about decentralized intelligence, so we need to consider the strategicnature of the social world; for this we map the vector field and use signal processingto investigate volatility in traffic flows. The primary objective of the study is todetermine factors that affect cash flows in decentralized applications, to enhance theunderstanding on whether decentralized organizations are perceived as truly“trustless entities”, or, if investors are rather forced to “trust in the design”. Thetarget audiences of this paper are Government regulatory authorities, Bankingsector and Stock markets.Keywords: Blockchain, Smart Contracts, Econophysics, Behavioral Finance, FieldsFinance.JEL Codes: G02, G32, G18, G21, G23“The term money has two very different meanings in popular discourse. We oftenspeak of someone “making money,” when we really mean that he or she is receiving anincome...In this use, money is a synonym for income or receipts; it refers to a flow... Wealso speak of someone’s having money in his or her pocket or in a safe-deposit box oron deposit at a bank. In that use, money refers to an asset”-Milton Friedman
Electronic copy available at: “…although we usually assume there is a sharp line of distinction between what ismoney and what is not-and the law generally tries to make such a distinction- so far asthe causal effects of monetary events are concerned, there is no such clear difference.