Platform Tokenization: Financing, Governance, and Moral Hazard

Management Science, 68(9): 6411-6433

49 Pages Posted: 6 Oct 2019 Last revised: 22 Sep 2022

See all articles by Jiri Chod

Jiri Chod

Boston College

Nikolaos Trichakis

Massachusetts Institute of Technology (MIT)

S. Alex Yang

London Business School

Date Written: July 1, 2021


This paper highlights two channels through which blockchain-enabled tokenization can alleviate moral hazard frictions between founders, investors, and users of a platform: token financing and decentralized governance. We consider an entrepreneur who uses outside financing and exerts private effort to build a platform, and users who decide whether to join in response to the platform's dynamic transaction fee policy. We first show that raising capital by issuing tokens rather than equity mitigates effort under-provision because the payoff to equity investors depends on profit, whereas the payoff to token investors depends on transaction volume, which is less sensitive to effort. Second, we show that decentralized governance associated with tokenization eliminates a potential holdup of platform users, which in turn alleviates the need to provide users with incentives to join, reducing the entrepreneur's financing burden. The downside of tokenization is that it puts a cap on how much capital the entrepreneur can raise. Namely, if tokens are highly liquid, i.e., they change hands many times per unit of time, their market capitalization is small relative to the NPV of the platform profits, limiting how much money one can raise by issuing tokens rather than equity.
If building the platform is expensive, this can distort the capacity investment. The resulting trade-off between the benefits and costs of tokenization leads to several predictions regarding adoption.

Keywords: blockchain, ICO, cryptocurrency, token, platform, entrepreneurial �finance, agency, moral hazard

Suggested Citation

Chod, Jiri and Trichakis, Nikolaos and Yang, S. Alex, Platform Tokenization: Financing, Governance, and Moral Hazard (July 1, 2021). Management Science, 68(9): 6411-6433, Available at SSRN: or

Jiri Chod (Contact Author)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Nikolaos Trichakis

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

S. Alex Yang

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom


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