Token Financing vs. Equity and Crowdfunding

Ulrich Hege, Edmond Baranes and Jin-Hyuk Kim

No 26-1730, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We present a stylized model of three entrepreneurial financing methods based on two tradeoffs. First, token financing and crowdfunding reveal consumer-investors’ demand for the product prior to investment, but upfront purchase weakens the entrepreneur’s incentive to deliver. Second, token financing permits a bubble component in token value, but reduces consumer surplus because tokens are stored rather than consumed. We characterize the conditions under which entrepreneurs prefer each financing method. We show that token financing can fund socially efficient projects that cannot be funded through equity or crowdfunding, but leads to suboptimal consumption. Finally, we propose an implementable hurdle condition for regulators.

Keywords: crowdfunding, entrepreneurial financing, initial coin offering, token regulation,; utility token (search for similar items in EconPapers)
JEL-codes: G32 G38 L26 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-ent and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:131654

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