Tokenomics: Dynamic Adoption and Valuation

67 Pages Posted: 26 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)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2020

Abstract

We develop a dynamic asset-pricing model of cryptocurrencies/tokens that allow users to conduct peer-to-peer transactions on digital platforms. The equilibrium value of tokens is determined by aggregating heterogeneous users' transactional demand rather than discounting cashflows as in standard valuation models. Endogenous platform adoption builds upon user network externality and exhibits an S-curve — it starts slow, becomes volatile, and eventually tapers off. Introducing tokens lowers users' transaction costs on the platform by allowing users to capitalize on platform growth. The resulting intertemporal feedback between user adoption and token price accelerates adoption and dampens user-base volatility.

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Suggested Citation

Cong, Lin and Li, Ye and Wang, Neng, Tokenomics: Dynamic Adoption and Valuation (May 2020). NBER Working Paper No. w27222, Available at SSRN: https://ssrn.com/abstract=3609674

Lin Cong (Contact Author)

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

Ithaca, NY 14853
United States

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

Ye Li

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

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