Tokenomics: Dynamic Adoption and Valuation

76 Pages Posted: 30 Jul 2018 Last revised: 14 Dec 2020

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Ye Li

University of Washington - Foster School of Business

Neng Wang

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER); Asian Bureau of Finance and Economic Research (ABFER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 26, 2020

Abstract

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

Cong, Lin and Li, Ye and Wang, Neng, Tokenomics: Dynamic Adoption and Valuation (June 26, 2020). Becker Friedman Institute for Research in Economics Working Paper No. 2018-49, Fisher College of Business Working Paper No. 2018-03-015, Charles A. Dice Center Working Paper No. 2018-15, Columbia Business School Research Paper No. 18-62, Available at SSRN: https://ssrn.com/abstract=3222802 or http://dx.doi.org/10.2139/ssrn.3222802

Lin Cong (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

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HOME PAGE: http://www.linwilliamcong.com/

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Ye Li

University of Washington - Foster School of Business ( email )

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

Neng Wang

Columbia University - Columbia Business School, Finance ( email )

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National Bureau of Economic Research (NBER) ( email )

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