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Tokenomics: When Tokens Beat Equity

Author

Listed:
  • Katya Malinova

    (DeGroote School of Business, McMaster University, Hamilton, Ontario L8S 4E8, Canada)

  • Andreas Park

    (University of Toronto Mississauga and Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada)

Abstract

In a token offering, investors fund a venture in exchange for tokens that grant rights to future economic output. To many financial industry insiders, tokens have no intrinsic merit and exist only as a way to evade regulations. We demonstrate that generic revenue-based token contracts are indeed economically inferior to equity and lead to over- or underproduction. However, an optimally designed token contract, which is a combination of an output presale and an incremental revenue-sharing agreement, yields the same payoffs as equity and debt. Moreover, with entrepreneurial moral hazard, tokens can finance a strictly larger set of ventures than equity.

Suggested Citation

  • Katya Malinova & Andreas Park, 2023. "Tokenomics: When Tokens Beat Equity," Management Science, INFORMS, vol. 69(11), pages 6568-6583, November.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:11:p:6568-6583
    DOI: 10.1287/mnsc.2023.4882
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