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Li, Zhe

University of British Columbia

While blockchain technology has developed rapidly and the crypto market has prospered, vulnerabilities and security breaches have occurred in blockchain derivative projects. To raise funds, these projects can issue tradable crypto tokens representing project stakes, such as voting rights or revenue shares. Through the event study method, this research investigates the crypto token market reaction to security breaches in blockchain projects, focusing on the breaches’ impact on the token value of the project. Potential moderators, including project and breach-specific attributes, and the role of social media in the post-breach market dynamics are also studied. This research provides evidence of a significantly negative impact on the token price on the breach day and over an event window of three days centered on the breach day. For moderators, larger projects with more market capital are found to be less penalized on their token price. Meanwhile, projects mainly providing financial services in the blockchain ecosystem suffer more negative abnormal returns under breach than non-financial projects. We also find that timely official Twitter announcements about the breach from the project are associated with more negative abnormal returns, potentially because of the negative sentiment and topics in the comments of the tweets. To the best of our knowledge, this research contributes to the literature for being the first to study how security breaches impact token value while also providing risk assessment tools for investors and urging the prioritization of security, especially for smaller and financial blockchain projects.

Text

2024-04-04

Attribution-NonCommercial-NoDerivatives 4.0 International

http://hdl.handle.net/2429/87687

Business Administration - Management Information Systems

University of British Columbia

UBCV

http://creativecommons.org/licenses/by-nc-nd/4.0/