Tokenomics: When Tokens Beat Equity

Katya Malinova and Andreas Park

Management Science, 2023, vol. 69, issue 11, 6568-6583

Abstract: In a token offering, investors fund a venture in exchange for tokens that grant rights to future economic output. To many financial industry insiders, tokens have no intrinsic merit and exist only as a way to evade regulations. We demonstrate that generic revenue-based token contracts are indeed economically inferior to equity and lead to over- or underproduction. However, an optimally designed token contract, which is a combination of an output presale and an incremental revenue-sharing agreement, yields the same payoffs as equity and debt. Moreover, with entrepreneurial moral hazard, tokens can finance a strictly larger set of ventures than equity.

Keywords: blockchain; tokens; decentralized finance; initial coin offerings (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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