Tokenomics: Dynamic Adoption and Valuation

38 Pages Posted: 25 Apr 2018 Last revised: 22 Oct 2018

See all articles by Lin William Cong

Lin William Cong

University of Chicago - Booth School of Business

Ye Li

Ohio State University

Neng Wang

Columbia Business School - Finance and Economics

Date Written: September 16, 2018

Abstract

We provide a dynamic asset-pricing model of cryptocurrencies/tokens on platforms and highlight their roles on endogenous user adoption. Tokens facilitate transactions among decentralized users and allows them to capitalize future growth of promising platforms. Tokens thus can accelerate adoption, reduce user-base volatility, and improve welfare. Token price increases non-linearly in platform productivity, users' heterogeneous transaction needs, and endogenous network size. The growth of user base starts slow, becomes explosive and volatile, and eventually tapers off. Our model can be extended to discuss platform token supply, cryptocurrency 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

Cong, Lin and Li, Ye and Wang, Neng, Tokenomics: Dynamic Adoption and Valuation (September 16, 2018). Columbia Business School Research Paper No. 18-46; 2nd Emerging Trends in Entrepreneurial Finance Conference. Available at SSRN: https://ssrn.com/abstract=3153860 or http://dx.doi.org/10.2139/ssrn.3153860

Lin Cong (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Ye Li

Ohio State University ( email )

Fisher Hall 836, 2100 Neil Ave
Columbus, OH 43210
United States

HOME PAGE: http://yeli-macrofinance.com

Neng Wang

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

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