Token-Based Platform Finance
Charles A. Dice Center Working Paper No. 2019-28
50 Pages Posted: 29 Oct 2019 Last revised: 4 Sep 2020
Date Written: September 4, 2020
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. Token supply increases when new tokens are issued to finance platform growth and to reward platform owners. Token supply decreases when the platform buys back tokens to boost the franchise value (seigniorage). Although 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 conflicts 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, Durable Goods, Gig Economy, Stablecoin, Token/Coin Offering, Optimal Token Supply
Suggested Citation: Suggested Citation