Token Tradability as a Form of Platform Deregulation: Intended and Unintended Consequences of a Policy Change

Abstract

As platforms grow in size and influence, they are increasingly relying on market-design levers to shape outcomes in their internal markets. We study one consequential but less-examined lever: deregulating the internally administered exchange rate of a platform-specific token. With deregulation, the platform stops setting the exchange rate and devolves rate discovery to users by opening a peer-to-peer secondary market. Whether such deregulation benefits or hurts the platform, and under what boundary conditions, has not been examined empirically. Specifically, we examine the impact of this transition on token value and user participation using a unique dataset from a US-based peer-to-peer product auction platform that suddenly enabled free-floating tradability of its tokens at a market-determined exchange rate. Our empirical strategy combines quasi-experimental analyses of the policy change (regression discontinuity in time, fixed effects, and Temporal Causal Inference) with two complementary controlled experiments (a behavioral study and a simulated AI-agent-based experiment). Our findings reveal that enabling tradability triggers a sharp and continuous decline in token value and lower transaction volume. The effects split across market sides: sellers receive fewer bids per auction (13.4% drop), aligning with the platform's intention to curb excessive bidding, whereas sellers make fewer sales (14.6% drop) with less product variety (9% drop), an unintended drop in supply-side participation. Sellers shift toward easier-to-value or digitally deliverable items, with the drop concentrated among users with large token balances. The underlying mechanism is a salience shock: once the market-determined rate becomes visible, users anchored on the nominal rate recognize the diminished real value of their token balances and reduce participation. Platforms deregulating an administered token rate should pair the move with stabilization mechanisms to safeguard marketplace participation and value.

Keywords: Digital Token Tradability, Policy Change, Platform Deregulation, Market-Design Levers, Salience Effect

JEL Classification: D47, O33, E42