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Token-based platform governance

Author

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  • Abadi, Joseph
  • Brunnermeier, Markus

Abstract

We develop a model to compare the governance of traditional shareholder-owned platforms to that of platforms that issue tokens. A traditional shareholder governance structure leads a platform to extract rents from its users. A platform that issues tokens for its services can mitigate this rent extraction, as rent extraction lowers the platform owners’ token seigniorage revenues. However, this mitigation from issuing “service tokens” is effective only if the platform can commit itself not to dilute the “service token” subsequently. Issuing “hybrid tokens” that bundle claims on the platform’s services and its profits enhances efficiency even absent ex-ante commitment power. Finally, giving users the right to vote on platform policies, by contrast, redistributes surplus but does not necessarily enhance efficiency.

Suggested Citation

  • Abadi, Joseph & Brunnermeier, Markus, 2024. "Token-based platform governance," Journal of Financial Economics, Elsevier, vol. 162(C).
  • Handle: RePEc:eee:jfinec:v:162:y:2024:i:c:s0304405x24001740
    DOI: 10.1016/j.jfineco.2024.103951
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    References listed on IDEAS

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