Tokenomics: Dynamic Adoption and Valuation∗
Tokenomics: Dynamic Adoption and Valuation∗ Lin William Congy Ye Lix Neng Wangz First Draft: February 4, 2018 This Draft: July 30, 2018 Abstract We provide a dynamic asset-pricing model of (crypto-)tokens on (blockchain-based) platforms, and highlight their roles on endogenous user adoption. Tokens intermediate transactions on decentralized networks, and their trading creates an inter-temporal complementarity among users, generating a feedback loop between token valuation and platform adoption. Consequently, tokens capitalize future platform growth, ac- celerate adoption, and reduce user-base volatility. Equilibrium token price increases non-linearly in platform productivity, user heterogeneity, and endogenous network size. The model also produces explosive growth of user base after an initial period of dor- mant adoption, accompanied by a run-up of token price volatility. We further discuss how our framework can be used to discuss cryptocurrency supply, token competition, and pricing assets under network externality. JEL Classification: C73, F43, E42, L86 Keywords: Bitcoin, Blockchain, Cryptocurrency, Digital Currency, ICOs, FinTech, Network Effect, Platforms, Tokens. ∗The authors thank Philip Bond, Jaime Casassus, Tom Ding, Alex Frankel, Zhiguo He, Dirk Jenter, An- drew Karolyi, Yongjin Kim, Pietro Veronesi, Johan Walden, Randall Wright, Yizhou Xiao, and seminar and conference participants at Chicago Booth, London Finance Theory Group Summer Conference, FinanceUC 14th International Conference, City University of Hong Kong International Finance Conference, ESSFM Gerzensee Asset Pricing Workshop, Emerging Trends in Entrepreneurial Finance Conference, Norwegian School of Economics, Rome Junior Finance Conference, and the Shanghai Forum for helpful comments. Cong gratefully acknowledges financial support from the Center for Research in Security Prices. yUniversity of Chicago Booth School of Business.
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