Research Feature
Initial coin offerings (ICOs) have quickly moved from niche fundraising tools to billion-dollar capital markets. By issuing crypto tokens instead of equity or debt, blockchain-based startups can attract investors worldwide—often without the scrutiny or structure of traditional securities regulation.
For accountants following developments in disclosure and investor communications, new research by Accountancy Professor Qing Burke, with coauthors Ben Li, Chi Wan (both at University of Massachusetts), and Yakun Wang (Chinese University of Hong Kong), offers important insights on white papers—the main communication vehicle used in ICOs to provide information to potential investors.
Their study, published in the Journal of Accounting, Auditing & Finance, reviewed more than 3,200 ICOs across 2016–2018 and found that readability—the ease with which investors can process and understand a disclosure—strongly predicts both fundraising success and post-offering performance. The findings extend long-standing accounting research on disclosure clarity into the largely unregulated crypto space.
White Papers are the ‘Prospectus’ in ICOs
In regulated markets, securities laws enforce minimum disclosure standards for initial public offerings (IPOs): the prospectus is filed with the SEC, among other required documents and audited financial statements. In ICOs, however, white papers—the primary offering documents—are voluntary. They vary widely in style and content, often taking on a marketing tone, and there is no requirement to provide financial statements; ICO issuers tend to be “idea-stage” startups.
The research team, led by Burke, tested the hypothesis that white papers written in clearer, more straightforward language would perform better in the marketplace. They defined readability as writing that avoids unnecessary complexity, jargon, or long-winded sentence structures.
While it may seem intuitive that clear, simple language would be better for business, prior psychology research suggests that harder-to-read documents can increase credibility—in the sense that readers may expect a certain level of complexity and sophistication, especially for tech startups.
In accounting, however, readability in financial reporting has a proven record. Clearer reports reduce information asymmetry, lower processing costs for investors, and build confidence. In contrast, convoluted disclosures may raise suspicions of deception by the offering firm, or increase investor’s perceptions of risk.
Key findings
Using the Bog Index (a modern readability measure designed for business texts) and the traditional Fog Index, the researchers analyzed white papers from 3,252 ICOs. Their findings are solidly on the side of clarity:
- Readability drives success. ICOs with more-readable white papers were significantly more likely to raise funds and to raise larger amounts. A one-standard-deviation improvement in readability increased the dollar amounts raised by 18% to 30%, depending on the index used.
- Investor type matters. The effect was stronger when ICOs attracted greater attention from retail investors. Individual investors, less equipped to parse dense documents, relied more heavily on readable disclosures when deciding where to place their money.
- Context matters too. If the presence of jargon is unavoidable, or when numerical information is sparse, a clear narrative writing style helps to attract investors.
- Post-offering performance improves. Startups with readable white papers were quicker to list their tokens on exchanges, experienced higher cumulative returns, faced fewer price crashes, and showed lower volatility.
- Readability signals credibility. Readable white papers were linked to better ratings from algorithmic scoring systems (e.g. Benchy) and more coverage from crypto experts. Conversely, unreadable white papers were more likely to be associated with scams.
Looking ahead
ICOs sit at the frontier of finance, where innovation often outpaces regulation. For accountants, they highlight how traditional concepts—like disclosure readability—remain vital even in new markets. As blockchain ventures continue to raise capital, and as token-based financing models evolve, the role of professional advisors in shaping clear, credible communications will only grow.
Ultimately, the study’s takeaway is simple: in both old and new capital markets, the best disclosures aren’t just accurate—they’re also easy to read.