Tokenomics: Dynamic Adoption and Valuation
47 Pages Posted: 25 Apr 2018 Last revised: 30 Sep 2018
Date Written: September 16, 2018
We provide a dynamic asset-pricing model of cryptocurrencies/tokens on (blockchain-based) platforms, and highlight their roles on endogenous user adoption. Tokens facilitate 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 growth of promising platforms, accelerate adoption, reduce user-base volatility, and can improve welfare. 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, platform 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