Token-based Platform Finance
Charles A. Dice Center Working Paper No. 2019-28
64 Pages Posted: 29 Oct 2019 Last revised: 3 May 2021
Date Written: May 3, 2021
We develop a dynamic model of platform economy where tokens serve as a means of payments among platform users and are issued to finance investment in platform productivity. Tokens are optimally issued to reward platform owners when the productivity-normalized token supply is low and burnt to boost the franchise value when the productivity-normalized normalized supply is high. Although token price is determined in a liquid market, the platform's financial constraint generates an endogenous token issuance cost, causing underinvestment through the conflict of interest between insiders (platform owners) and outsiders (users). Blockchain technology mitigates underinvestment by addressing the platform's time-inconsistency problem.
Keywords: Blockchain, Cryptocurrency, Dynamic Corporate Financing, Durable Goods, Gig Economy, Optimal Token Supply, Time Inconsistency, Token/Coin Offering
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