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Tokenomics: Dynamic Adoption and Valuation

Author

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  • Cong, Lin William

    (U of Chicago)

  • Li, Ye

    (Oh State U)

  • Wang, Neng

    (Columbia U and China Academy of Financial Research)

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, accelerate 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 dormant 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.

Suggested Citation

  • Cong, Lin William & Li, Ye & Wang, Neng, 2018. "Tokenomics: Dynamic Adoption and Valuation," Working Paper Series 2018-15, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2018-15
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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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