Financing Platforms With Cryptocurrency: Token Retention, Sales Commission, and ICO Caps

42 Pages Posted: 1 Feb 2021 Last revised: 1 Sep 2022

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 1, 2022

Abstract

Centralized platforms (e.g., Uber) rely primarily on sales commission (aka, service fees) to generate revenues whereas decentralized blockchain-based startups (e.g., Filecoin) often forego these in favor of token retention. We show that both levers help to overcome moral hazard and incentivize platform building, but they aren't perfect substitutes and imply a strategic trade-off: the commission approach generally leads to higher long-term profits for the platform founders, whereas token retention can lead to higher service levels, benefiting the service providers and users. Furthermore, the two levers also require different ICO designs when raising capital: commission works best when paired with uncapped ICOs (i.e., unlimited token supply) whereas token retention works best with capped ICOs under certain conditions. These findings offer some guidance and explanations for the operating and ICO design choices of decentralized platforms.

Suggested Citation

Gan, Rowena and Tsoukalas, Gerry and Netessine, Serguei, Financing Platforms With Cryptocurrency: Token Retention, Sales Commission, and ICO Caps (August 1, 2022). SMU Cox School of Business Research Paper No. 21-03, 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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
301
Abstract Views
1,894
rank
149,045
PlumX Metrics