Token Financing vs. Equity and Crowdfunding

Edmond Baranès, Ulrich Hege and Jin-Hyuk Kim
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Edmond Baranès: MRE - Montpellier Recherche en Economie - UM - Université de Montpellier
Ulrich Hege: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Jin-Hyuk Kim: University of Colorado [Boulder]

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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: Entrepreneurial financing; Initial coin offering; Token regulation; Utility token; Crowdfunding; Financement participatif; Financement des entreprises; Offre initiale de jetons; Réglementation des jetons; Jeton utilitaire (search for similar items in EconPapers)
Date: 2026-04-02
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