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Decentralized Platforms: Governance, Tokenomics, and ICO Design

Author

Listed:
  • Jingxing (Rowena) Gan

    (Cox School of Business, Southern Methodist University, Dallas, Texas 75205)

  • Gerry Tsoukalas

    (Questrom School of Business, Boston University, Boston, Massachusetts 02215; IMD, CH-1001 Lausanne Switzerland)

  • Serguei Netessine

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

Traditional two-sided platforms (e.g., Amazon, Uber) rely primarily on commission contracts to generate revenues and fuel growth, whereas their decentralized counterparts (e.g., Uniswap, Filecoin) often forego these in favor of token retention. What economics underpin this choice? We show that with properly designed initial coin offerings (ICOs), both mechanisms can independently alleviate market failures at the initial fundraising stage and incentivize long-term platform building. However, they achieve this in different ways. Although commission contracts often lead to higher profits for founders, token retention leads to higher service levels, benefiting the users and service providers. In essence, token retention surrenders a fraction of earnings to better align with the tenets of decentralized governance. Combining both mechanisms can add value, but only in relatively limited cases. These findings offer guidance and a possible rationale for why platforms may want to favor one mechanism over the other or use both.

Suggested Citation

  • Jingxing (Rowena) Gan & Gerry Tsoukalas & Serguei Netessine, 2023. "Decentralized Platforms: Governance, Tokenomics, and ICO Design," Management Science, INFORMS, vol. 69(11), pages 6667-6683, November.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:11:p:6667-6683
    DOI: 10.1287/mnsc.2021.02076
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