Token-Based Platform Finance

45 Pages Posted: 29 Oct 2019 Last revised: 5 May 2020

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management

Ye Li

Ohio State University

Neng Wang

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: March 14, 2020

Abstract

We develop a dynamic model of platform economy where tokens derive value by facilitating transactions among users and the platform conducts optimal token-supply policy to finance investment in platform quality and to compensate platform owners. The franchise value (seigniorage) incentivizes the owners to buy back and burn tokens out of circulation, reducing token price volatility. Even though token price is endogenously determined in a liquid market, the platform's financial constraint generates an endogenous token issuance cost that causes under-investment and conflict of interest between insiders (owners) and outsiders (users). Blockchain technology improves efficiency by enabling commitment to predetermined rules of token supply that address the platform owners' time inconsistency and thereby mitigates under-investment.

Keywords: Blockchain, Cryptocurrency, Dynamic Corporate Financing, Gig Economy, Time Inconsistency, Token/Coin Offering, Optimal Token Supply

Suggested Citation

Cong, Lin and Li, Ye and Wang, Neng, Token-Based Platform Finance (March 14, 2020). Fisher College of Business Working Paper No. 2019-03-028, Available at SSRN: https://ssrn.com/abstract=3472481 or http://dx.doi.org/10.2139/ssrn.3472481

Lin Cong

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

Ithaca, NY 14853
United States

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

Ye Li (Contact Author)

Ohio State University ( email )

Fisher Hall 836, 2100 Neil Ave
Columbus, OH 43210
United States

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

Neng Wang

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
310
Abstract Views
1,479
rank
106,145
PlumX Metrics