Decentralization Through Tokenization

Michael Sockin and Wei Xiong

No 29720, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine decentralization of digital platforms through tokenization as an innovation to resolve the conflict between platforms and users. By delegating control to users, tokenization through utility tokens acts as a commitment device that prevents a platform from exploiting users. This commitment comes at the cost of not having an owner with an equity stake who, in conventional platforms, would subsidize participation to maximize the platform's network effect. This trade-off makes utility tokens a more appealing funding scheme than equity for platforms with weak fundamentals. The conflict reappears when non-users, such as token investors and validators, participate on the platform.

JEL-codes: G3 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-cwa and nep-pay
Note: AP CF ME PR
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Published as MICHAEL SOCKIN & WEI XIONG, 2023. "Decentralization through Tokenization," The Journal of Finance, vol 78(1), pages 247-299.

Downloads: (external link)
http://www.nber.org/papers/w29720.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:29720

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w29720

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().