Tokenomics: Dynamic Adoption and Valuation

The demand of liquid assets with uncertain lumpy expenditures

Lin Cong, Ye Li and Neng Wang

The Review of Financial Studies, 2021, vol. 34, issue 3, 1105-1155

Abstract: We develop a dynamic asset pricing model of cryptocurrencies/tokens that allow users to conduct peer-to-peer transactions on digital platforms. The equilibrium price of tokens is determined by aggregating heterogeneous users’ transactional demand, rather than discounting cash flows as is done in standard valuations models. Endogenous platform adoption builds on user network externality and exhibits an -curve: it starts slow, becomes volatile, and eventually tapers off. The introduction of tokens lowers users’ transaction costs on the platform by allowing users to capitalize on platform growth. The resultant intertemporal feedback between user adoption and token price accelerates adoption and dampens user-base volatility.

JEL-codes: E42 G12 L86 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (112)

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Related works:
Working Paper: Tokenomics: Dynamic Adoption and Valuation (2020)
Working Paper: Tokenomics: Dynamic Adoption and Valuation (2018)
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