Token-Based Platform Finance
45 Pages Posted: 29 Oct 2019 Last revised: 5 May 2020
Date Written: March 14, 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 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
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