Optimal Financing with Tokens

62 Pages Posted: 8 Dec 2019 Last revised: 26 Jun 2020

See all articles by Sebastian Gryglewicz

Sebastian Gryglewicz

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Simon Mayer

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Erwan Morellec

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Date Written: November 12, 2019

Abstract

We develop a model in which a startup firm issues tokens to finance a digital platform, which creates agency conflicts between platform developers and outsiders. We show that token financing is generally preferred to equity financing, unless the platform expects strong cash flows or faces severe financing needs and large agency conflicts. Tokens are characterized by their utility features, facilitating transactions, and security features, granting cash flow rights. While security features trigger endogenous network effects and spur platform adoption, they also dilute developers' equity stake and incentives so that the optimal level of security features decreases with agency conflicts and financing needs.

Keywords: Tokens, Platforms, Moral Hazard, Financial Constraints, Dividend Rights

JEL Classification: G32

Suggested Citation

Gryglewicz, Sebastian and Mayer, Simon and Morellec, Erwan, Optimal Financing with Tokens (November 12, 2019). Swiss Finance Institute Research Paper No. 19-78, Available at SSRN: https://ssrn.com/abstract=3485880 or http://dx.doi.org/10.2139/ssrn.3485880

Sebastian Gryglewicz (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Simon Mayer

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erwan Morellec

Ecole Polytechnique Fédérale de Lausanne ( email )

College of Management
Extranef Quartier UNIL-Dorigny
1015 Lausanne, CH-1015
Switzerland

HOME PAGE: http://sfi.epfl.ch/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
101
Abstract Views
890
rank
289,755
PlumX Metrics