Blockchain Platform Design
32 Pages Posted: 3 Nov 2021 Last revised: 14 Oct 2022
Date Written: October 13, 2022
This paper analyzes a dynamic general equilibrium model of a blockchain platform with a native utility token, like Ethereum. On the one hand, the tokens allow users to access the platform's services. On the other hand, the platform uses the tokens to reward network nodes for participating in the underlying proof-of-stake consensus protocol. The platform offers a reward path to the nodes and a path of service quality levels to its users and then repeatedly interacts with them in a spot market to finance service provision. A key feature of such blockchain platforms is that users face network congestion and thus compete for the services by employing some of their tokens. In the optimal platform design, users receive positive rent, and the service quality is inefficiently low. Another feature is that security requires a relatively high, constant staking rate. In the optimal design, the staking rate has no influence on the participants' rents. There is an initial coin offering (ICO) in the first round in any optimal design. Some optimal designs create more ICO hype than others.
Keywords: blockchain, platform, ICO, proof-of-stake, decentralization, utility token, antitrust
JEL Classification: D40, D47, D59, G29, L40.
Suggested Citation: Suggested Citation