A Model of Cryptocurrencies

Michael Sockin and Wei Xiong
Additional contact information
Michael Sockin: University of Texas, Austin
Wei Xiong: Princeton University

Working Papers from Princeton University. Economics Department.

Abstract: This paper develops a model to examine decentralization of online platforms through tokenization as an innovation to resolve the conflict between platforms and users. By delegating control to a collection of preprogrammed smart contracts, tokenization creates commitment devices that prevent a platform from abusing its users. This commitment comes at the cost of not having an owner with an equity stake who, in conventional platforms, would subsidize user 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. Our analysis further highlights that token prices are determined by the marginal user’s convenience yield, in contrast to equity, whose payoff is determined by the average user.

Keywords: Cryptocurrencies (search for similar items in EconPapers)
JEL-codes: G19 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-cwa, nep-mic and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://wxiong.mycpanel.princeton.edu/papers/DynCrypto.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:pri:econom:2021-67

Access Statistics for this paper

More papers in Working Papers from Princeton University. Economics Department. Contact information at EDIRC.
Bibliographic data for series maintained by Bobray Bordelon ().