Security Token Offerings Versus Loan Guarantees for Risk-Averse Entrepreneurs Under Asymmetric Information

We compare two competitive financing schemes, loan guarantees and security token offerings (STOs), for a risk-averse entrepreneur to start a project. We show that, if information is symmetric, STOs are better than loan guarantees. Under asymmetric information, we derive the highest equity price that makes low-type entrepreneurs' imitation unprofitable. If the project risk is sufficiently high, loan guarantees (STOs) induce pooling (separating) equilibrium, and otherwise the opposite holds. Generally the higher the project risk, the less the share of equity retained by entrepreneurs. If project risk is low, loan guarantees are better than STOs, and otherwise the opposite holds true