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Economic Implications of Blockchain Platforms

Author

Listed:
  • Jun Aoyagi
  • Daisuke Adachi

Abstract

In an economy with asymmetric information, the smart contract in the blockchain protocol mitigates uncertainty. Since, as a new trading platform, the blockchain triggers segmentation of market and differentiation of agents in both the sell and buy sides of the market, it recomposes the asymmetric information and generates spreads in asset price and quality between itself and a traditional platform. We show that marginal innovation and sophistication of the smart contract have non-monotonic effects on the trading value in the blockchain platform, its fundamental value, the price of cryptocurrency, and consumers' welfare. Moreover, a blockchain manager who controls the level of the innovation of the smart contract has an incentive to keep it lower than the first best when the underlying information asymmetry is not severe, leading to welfare loss for consumers.

Suggested Citation

  • Jun Aoyagi & Daisuke Adachi, 2018. "Economic Implications of Blockchain Platforms," Papers 1802.10117, arXiv.org, revised Oct 2018.
    • Handle: RePEc:arx:papers:1802.10117
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    References listed on IDEAS

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    Cited by:

    1. Dulani Jayasuriya Daluwathumullagamage & Alexandra Sims, 2020. "Blockchain-Enabled Corporate Governance and Regulation," IJFS, MDPI, vol. 8(2), pages 1-41, June.
    2. Olivier Meier & Aurélie Sannajust, 0. "The smart contract revolution: a solution for the holdup problem?," Small Business Economics, Springer, vol. 0, pages 1-16.
    3. Prithviraj Lakkakula & David W. Bullock & William W. Wilson, 2022. "Asymmetric information and blockchains in soybean commodity markets," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 44(1), pages 273-298, March.

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