Value of Trust: Pricing Utility Tokens in a Blockchain-based Network

Abstract

Blockchain technology has the potential to revolutionize the way trusted computing is delivered to end users. One of the pillars enabling the shift is a decentralized token-based business model. While intuitively appealing, little is known about the economic properties of such models. In this note we consider a setting where trusted computation is delegated to the nodes with probabilities proportional to their ”stakes” in the network, that is, the number of tokens they own and lock up as a collateral. In this setting we find the equilibrium token price, number of miners participating in the system and show how trust created by the blockchain is reflected in the token valuation.

Keywords: blokchain, tokenomics, business models, trust

JEL Classification: G12, D40, D80, M20, P40