Tokenomics: Dynamic Adoption and Valuation
Charles A. Dice Center Working Paper No. 2018-15
44 Pages Posted: 30 Jul 2018 Last revised: 22 May 2019
Date Written: May 18, 2019
We develop a dynamic asset-pricing model of cryptocurrencies/tokens that facilitate peer-to-peer transactions on digital platforms. The equilibrium value of tokens is determined by users' transactional demand rather than cashflows as in standard valuation models. Endogenous platform adoption exhibits an S-curve -- it starts slow, becomes volatile, and eventually tapers off. Users' adoption generates positive network externality, which leads to endogenous token-price risk and boom-bust price dynamics. Tokens allow users to capitalize on platform growth, inducing an intertemporal feedback between user adoption and token price that accelerates platform adoption, reduces user-base volatility, and improves welfare.
Keywords: Asset Pricing, Blockchain, Cryptocurrency, Digital Marketplace, FinTech, Intertemporal Feedback Effect, Network Externality, Tokens
JEL Classification: G12, L86
Suggested Citation: Suggested Citation