NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Token-Based Platform Finance

Lin William Cong, Ye Li, Neng Wang

NBER Working Paper No. 27810
Issued in September 2020
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, Monetary Economics

We develop a dynamic model of platform economy where tokens derive value by facilitating transactions among users and the platform conducts optimal token-supply policy. Token supply increases when new tokens are issued to finance platform growth and to reward platform owners. Token supply decreases when the platform buys back tokens to boost the franchise value (seigniorage). Although token price is endogenously determined in a liquid market, the platform’s financial constraint generates an endogenous token issuance cost that causes under-investment and conflicts of interest between insiders (owners) and outsiders (users). Blockchain technology improves efficiency by enabling commitment to predetermined rules of token supply that address the platform owners’ time inconsistency and thereby mitigates under-investment.

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Document Object Identifier (DOI): 10.3386/w27810

 
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