Decentralized Platforms: Governance, Tokenomics, and ICO Design

Management Science (forthcoming)

48 Pages Posted: 1 Feb 2021 Last revised: 13 Aug 2023

See all articles by Rowena Gan

Rowena Gan

Southern Methodist University (SMU) - Information Technology and Operations Management Department (ITOM)

Gerry Tsoukalas

University of Pennsylvania - The Wharton School; Boston University; Luohan Academy

Serguei Netessine

University of Pennsylvania - The Wharton School

Date Written: August 8, 2023

Abstract

Traditional two-sided platforms (e.g., Amazon, Uber) rely primarily on commission contracts to generate revenues and fuel growth, whereas their decentralized counterparts (e.g., Uniswap, Filecoin) often forego these, in favor of token retention. What economics underpin this choice? We show that with properly designed Initial Coin Offerings (ICOs), both mechanisms can independently alleviate market failures at the initial fundraising stage, and incentivize long-term platform building. But they achieve this in different ways. While commission contracts often lead to higher profits for founders, token retention leads to higher service levels, benefiting the users and service providers. In essence, token retention surrenders a fraction of earnings to better align with the tenets of decentralized governance. Combining both mechanisms can add value, but only in relatively limited cases. These findings offer guidance and a possible rationale for why platforms may want to favor one mechanism over the other, or employ both.

Keywords: decentralized governance, blockchain, dApps, Information Aggregation, crowdsourcing, Voting

Suggested Citation

Gan, Rowena and Tsoukalas, Gerry and Netessine, Serguei, Decentralized Platforms: Governance, Tokenomics, and ICO Design (August 8, 2023). Management Science (forthcoming), Available at SSRN: https://ssrn.com/abstract=3776411 or http://dx.doi.org/10.2139/ssrn.3776411

Rowena Gan (Contact Author)

Southern Methodist University (SMU) - Information Technology and Operations Management Department (ITOM) ( email )

Dallas, TX 75275
United States

Gerry Tsoukalas

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Luohan Academy ( email )

No. 556, Xixi Road, Z Space
Xihu District
Hangzhou, Zhejiang 310013
China

Serguei Netessine

University of Pennsylvania - The Wharton School ( email )

3730 Walnut Street
Philadelphia, PA 19104-6367
United States
(215) 573 3571 (Phone)

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

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