Tokenomics: Dynamic Adoption and Valuation
Charles A. Dice Center Working Paper No. 2018-15
76 Pages Posted: 30 Jul 2018 Last revised: 3 Aug 2020
Date Written: June 26, 2020
We develop a dynamic asset pricing model of cryptocurrencies/tokens that allows users to conduct peer-to-peer transactions on digital platforms. The equilibrium value of tokens is determined by aggregating heterogeneous users' transactional demand rather than discounting cash flows, as is done in standard valuation models. Endogenous platform adoption builds on user network externality and exhibits an $S$-curve: it starts slow, becomes volatile, and eventually tapers off. The introduction of tokens lowers users' transaction costs on the platform by allowing users to capitalize on platform growth. The intertemporal feedback between user adoption and token price accelerates adoption and dampens user-base volatility.
Keywords: Blockchain, Carry Cost, Convenience Yield, Cryptocurrency, FinTech, Intertemporal Feedback, Means of Payment, Network Externality, Platform, Token
JEL Classification: E42, G12, L86
Suggested Citation: Suggested Citation