Tokenomics: Dynamic Adoption and Valuation
We develop a dynamic asset-pricing model of cryptocurrencies/tokens that allow users to conduct peer-to-peer transactions on digital platforms. The equilibrium value of tokens is determined by aggregating heterogeneous users' transactional demand rather than discounting cashflows as in standard valuation models. Endogenous platform adoption builds upon user network externality and exhibits an S-curve — it starts slow, becomes volatile, and eventually tapers off. Introducing tokens lowers users' transaction costs on the platform by allowing users to capitalize on platform growth. The resulting intertemporal feedback between user adoption and token price accelerates adoption and dampens user-base volatility.
Lin William Cong & Ye Li & Neng Wang & Itay Goldstein, 2021. "Tokenomics: Dynamic Adoption and Valuation," The Review of Financial Studies, vol 34(3), pages 1105-1155. citation courtesy of