The Role of Trust in the Context of Initial Coin Offerings

This thesis investigates the role of trust in the context of decentralised finance (DeFi). Representing a new paradigm shift in finance, DeFi emerge from the technological developments that we have witnessing in the last decades, particularly decentralised ledger technologies (DLTs) of which Blockchain is perhaps the most popular. DeFi is changing the way that firms raise financial capital and a clear example is Initial Coin Offerings (ICOs) – a financing mechanism in which new ventures issue tokens in exchange for established cryptocurrencies through a decentralised and desintermediated process.Despite the several benefits associated to ICOs, such as no intermediation costs, absence of geographical limitations, and the possibility of smaller investors and innovative firms to be included in the financial markets, the fact is that this financial source entails significant risks. For instance, the lack of information available about the firm, the absence of a central entity to coordinate the financial transactions, and the digital nature of the business, might represent a threat for prospective investors.While the existing literature suggests that trust has a significant role in mitigating information asymmetries between investors and firms and that entrepreneurs can send trustworthiness signals to propsective investors in order to earn their trust and consequently experience easier access to financial capital, it primarily focuses on traditional finance. In this thesis I ivestigate the influence of signalling the two dimensions of trust – goodwill trust and competence-based trust – on the fundraising success of token offerings. Thus, this thesis aims to test the previous knowledge from trust literature in a novel and distinct context: decentralised finance.The analysis employs a quantitative approach, using a cross-sectional dataset and diverse quantitative methodologies in order to enhance our understanding of how signals of trustworthiness sent out by the top management teams of new ventures influences the probability of reaching the soft cap during ICOs.