Token-Based Platform Finance

Lin Cong, Ye Li and Neng Wang
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Ye Li: Ohio State University

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We develop a dynamic model of platform economy where tokens derive value by facilitating transactions among users and the platform conducts optimal token-supply policy to finance investment in platform quality and to compensate platform owners. Even though token price is endogenously determined in a liquid market, the platform's financial constraint generates an endogenous token issuance cost that causes under-investment and conflict of interest between insiders (owners) and outsiders (users). The franchise value (seigniorage) incentivizes the owners to buy back and burn tokens out of circulation, reducing token price volatility. Blockchain technology is crucial for token-based platforms because it enables platform owners to commit to predetermined rules of token supply that can significantly improve efficiency by addressing platform owners' time inconsistency and mitigating under-investment.

Date: 2019-11
New Economics Papers: this item is included in nep-pay
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Citations: View citations in EconPapers (6)

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http://ssrn.com/abstract=3472481

Related works:
Journal Article: Token-based platform finance (2022)
Working Paper: Token-Based Platform Finance (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2019-28

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