Tokenomics: Dynamic Adoption and Valuation
51 Pages Posted: 25 Apr 2018 Last revised: 17 Aug 2018
Date Written: July 30, 2018
We provide a dynamic asset-pricing model of (crypto-)tokens on (blockchain-based) platforms, and highlight their roles on endogenous user adoption. Tokens intermediate transactions on decentralized networks, and their trading creates an inter-temporal complementarity among users, generating a feedback loop between token valuation and platform adoption. Consequently, tokens capitalize future platform growth, accelerate adoption, and reduce user-base volatility. Equilibrium token price increases non-linearly in platform productivity, user heterogeneity, and endogenous network size. The model also produces explosive growth of user base after an initial period of dormant adoption, accompanied by a run-up of token price volatility. We further discuss how our framework can be used to discuss cryptocurrency supply, token competition, and pricing assets under network externality.
Keywords: Bitcoin, Cryptocurrency, Blockchain, Tokens, FinTech, Digital Currency, Network Effect, Platforms, ICOs
JEL Classification: C73, F43, E42, L86
Suggested Citation: Suggested Citation