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Token-Based Platform Finance

Author

Listed:
  • Cong, Lin W.

    (Cornell University)

  • Li, Ye

    (Ohio State University)

  • Wang, Neng

    (Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER))

Abstract

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 to finance investment in platform quality and to compensate platform owners. Even though 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 conflict of interest between insiders (owners) and outsiders (users). The franchise value (seigniorage) incentivizes the owners to buy back and burn tokens out of circulation, reducing token price volatility. Blockchain technology is crucial for token-based platforms because it enables platform owners to commit to predetermined rules of token supply that can significantly improve efficiency by addressing platform owners' time inconsistency and mitigating under-investment.

Suggested Citation

  • Cong, Lin W. & Li, Ye & Wang, Neng, 2019. "Token-Based Platform Finance," Working Paper Series 2019-28, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2019-28
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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G3 - Financial Economics - - Corporate Finance and Governance

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