Utility Tokens as a Commitment to Competition

Abstract

We show that utility tokens can limit the rent-seeking activities of two-sided platforms with market power while preserving efficiency gains due to network effects. We model platforms where buyers and sellers can meet to exchange services. Tokens serve as the sole medium of exchange on the platform and can be traded in a secondary market. Tokenizing a platform allows a firm to give up monopolistic rents associated with the control of the platform and to make a credible commitment to long-run competitive prices. Crowd-funding through token sales or the threat of entrants can incentivize developers to tokenize platforms.

Keywords: Utility Tokens, Crowd-Funding, Blockchain, Financing