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Financial incentives for open source development: the case of Blockchain

Andrea Canidio ()

MPRA Paper from University Library of Munich, Germany

Abstract: Unlike traditional open-source projects, developers of open-source blockchain-based projects can reap large financial rewards thanks to a modern form of seignorage. I study to what extent this novel form of financing generates incentives to innovate. I consider a developer working on an open-source blockchain-based protocol that can be used only in conjunction with a protocol-specific crypto-token. This token is first sold to investors via an auction (the ICO phase) and then traded on a frictionless financial market. I establish that seignorage is effective at providing capital and at generating incentives to develop the protocol. Its effectiveness is however limited by the fact that, in all equilibria of the game, in each post-ICO period there is a positive probability that the developer sells all his tokens and, as a consequence, no development occurs.

Keywords: Blockchain; decentralized ledger technologies; Initial Coin Offering (ICO); seignorage; innovation; incentives; open source (search for similar items in EconPapers)
JEL-codes: L17 L26 O31 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-des and nep-pay
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