Tokenomics: Optimal Monetary and Fee Policies

53 Pages Posted: 10 Oct 2022 Last revised: 22 Apr 2024

See all articles by Urban J. Jermann

Urban J. Jermann

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Haotian Xiang

Guanghua School of Management, Peking University

Date Written: April 20, 2024

Abstract

We document properties of crypto monetary policies based on about 2,000 tokens: (1) Money growth rates decline with age and stabilize at 0.2% per month on average, with younger cohorts converging faster to the long-run growth rate; (2) Long-run money growth rates and convergence speeds are positively correlated in the cross-section; (3) Tokens widely held by retail investors have relatively low long-run money growth rates and convergence speeds. We present a dynamic model to determine the optimal token issuance and fee policies for issuers. Committing to low future money growth and fees increases profits, and the degree of commitment matters for the existence of equilibria. A Ramsey issuer who maximizes profits, after the initial period, makes choices that maximize the utility value of all tokens. We present a model with probabilistic commitment and show that issuers with high commitment choose low long-run money growth rates and fee ratios, and they reduce them slowly.

Keywords: Cryptocurrencies, money growth rates, commitment

JEL Classification: E52, G32

Suggested Citation

Jermann, Urban J. and Xiang, Haotian, Tokenomics: Optimal Monetary and Fee Policies (April 20, 2024). Available at SSRN: https://ssrn.com/abstract=4236859 or http://dx.doi.org/10.2139/ssrn.4236859

Urban J. Jermann (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
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Philadelphia, PA 19104
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215-898-4184 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Haotian Xiang

Guanghua School of Management, Peking University ( email )

Beijing
China

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