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Decentralization through Tokenization

Author

Listed:
  • MICHAEL SOCKIN
  • WEI XIONG

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 nonusers, such as token investors and validators, participate on the platform.

Suggested Citation

  • Michael Sockin & Wei Xiong, 2023. "Decentralization through Tokenization," Journal of Finance, American Finance Association, vol. 78(1), pages 247-299, February.
    • Handle: RePEc:bla:jfinan:v:78:y:2023:i:1:p:247-299
    DOI: 10.1111/jofi.13192
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    References listed on IDEAS

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