Blockchain Tokens, Price Volatility, and Active User Base: An Empirical Analysis Based on Tokenomics

Roberto Moncada (), Enrico Ferro, Maurizio Fiaschetti and Francesca Medda
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Roberto Moncada: Department of Economics, Social Studies, Applied Mathematics and Statistics, University of Turin, Lungo Dora Siena, 100A, 10153 Turin, Italy
Enrico Ferro: LINKS Foundation, Via Pier Carlo Boggio, 61, 10138 Turin, Italy
Maurizio Fiaschetti: UCL Institute of Finance and Technology, Chadwick Building, Gower Street, London WC1 E6BT, UK
Francesca Medda: UCL Institute of Finance and Technology, Chadwick Building, Gower Street, London WC1 E6BT, UK

IJFS, 2024, vol. 12, issue 4, 1-30

Abstract: Blockchain tokens have accumulated tremendous market value but remain highly controversial, given their price volatility and seemingly speculative nature. Ironically, this very characteristic can foster token retention as users wait for occasions of appreciation. In this paper, we conduct an empirical analysis with 58 tokens in two steps: first, an investigation of the drivers of user activity and token price volatility using a new blockchain token classification framework, searching for possible tokenomics links. Our findings suggest that there is an intrinsic relationship between the way tokens are used as a means of exchange and how token usage dynamics influence user engagement oppositely to market stability. Only some features, such as earning potential and voting rights, foster token-holding strategies, while only Ethereum ecosystem membership has positive effects on price volatility. Second, we analyze the direct relationship between price volatility and active users. Results show that, on average, a 10% increase in volatility is related to a decrease in active addresses ranging between 3.96% and 5.88%. The finding is supportive of the hypothesis that token price volatility may be treated as an opportunity to increase token retention.

Keywords: tokens; blockchain; price volatility; active user base; tokenomics (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2024
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