Tokenomics: Dynamic Adoption and Valuation

47 Pages Posted: 25 Apr 2018 Last revised: 30 Sep 2018

Lin William Cong

University of Chicago - Booth School of Business

Ye Li

Ohio State University

Neng Wang

Columbia Business School - Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2018

Abstract

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

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

Register to save articles to
your library

Register

Paper statistics

Downloads
1,484
rank
9,453
Abstract Views
3,993
PlumX