Token-Based Platform Finance

64 Pages Posted: 14 Sep 2020 Last revised: 19 Nov 2021

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management

Ye Li

Ohio State University (OSU)

Neng Wang

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Asian Bureau of Finance and Economic Research (ABFER)

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Date Written: September 2020

Abstract

We develop a dynamic model of platform economy where tokens serve as a means of payments among platform users and are issued to finance investment in platform productivity. Tokens are optimally issued to reward platform owners when the productivity-normalized token supply is low and burnt to boost the franchise value when the productivity-normalized normalized supply is high. Although token price is determined in a liquid market, the platform’s financial constraint generates an endogenous token issuance cost, causing underinvestment through the conflict of interest between insiders (platform owners) and outsiders (users). Blockchain technology mitigates underinvestment by addressing the platform’s time-inconsistency problem.

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Suggested Citation

Cong, Lin and Li, Ye and Wang, Neng, Token-Based Platform Finance (September 2020). Available at SSRN: https://ssrn.com/abstract=3692166

Lin Cong (Contact Author)

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

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United States

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

Ye Li

Ohio State University (OSU) ( email )

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Neng Wang

Columbia Business School - Finance and Economics ( email )

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