Utility Token Design
34 Pages Posted: 3 Nov 2021 Last revised: 22 Nov 2021
Date Written: November 20, 2021
This paper analyzes a dynamic general equilibrium model of cryptographic utility tokens. The tokens are native to a proof-of-stake blockchain and serve a two-fold role. On the one hand, tokens are paid out to validators for consensus provision. On the other hand, tokens are required by blockchain users to access the services offered on the secured chain. Validators and users repeatedly interact in a spot market. There is an inefficiency at the extensive margin because users need to be given some rent in equilibrium, yet there no inefficiency at the intensive margin: given operation, the blockchain platform always chooses the socially optimal value of services. Further, I formulate a utility token trilemma. Any equilibrium features at most two of the following: (i) bonding of tokens used for service consumption, (ii) price stability, (iii) constant value of the provided services. The results have implications both for antitrust and for practical token market design.
Keywords: blockchain, utility token, platforms, proof-of-stake, dynamic general equilibrium
JEL Classification: D21, D40, D50
Suggested Citation: Suggested Citation