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Payments on Digital Platforms: Resiliency, Interoperability and Welfare

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  • Jonathan Chiu
  • Russell Wong

Abstract

Digital platforms, such as Alibaba and Amazon, operate an online marketplace to facilitate transactions. This paper studies a platform’s business model choice between accepting cash and issuing tokens, as well as the implications for welfare, resiliency, and interoperability. A cash platform free rides on the existing payment infrastructure and profits from collecting transaction fees. A token platform earns seigniorage, albeit bearing the costs of setting up the system and holding reserves to mitigate the cyber risk. Tokens earn consumers a return, insulating transactions from the liquidity costs of using cash, but also expose them to the remaining cyber risk. The platform issues tokens if the interest rate is high, the platform scope is large, and the cyber risk is small. Unbacked floating tokens with zero transaction fees or interest-bearing stablecoins can implement the equilibrium business model, which is not necessarily socially optimal because the platform does not internalize its impacts on off-platform activities. The model explains why Amazon does not issue tokens, but Alipay issues tokens circulatable outside its Alibaba platforms. Regulations such as a minimum reserve requirement can reduce welfare

Suggested Citation

  • Jonathan Chiu & Russell Wong, 2021. "Payments on Digital Platforms: Resiliency, Interoperability and Welfare," Working Paper 21-04, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:90444
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    Cited by:

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    2. Yang, Xiaohua & Yuan, Chaoqing, 2025. "Consumer welfare in the platform Economy: The role of desirable product quality," Journal of Retailing and Consumer Services, Elsevier, vol. 87(C).
    3. Dionysopoulos, Lambis & Marra, Miriam & Urquhart, Andrew, 2024. "Central bank digital currencies: A critical review," International Review of Financial Analysis, Elsevier, vol. 91(C).
    4. Rodney Garratt & Maarten RC van Oordt, 2024. "Crypto Exchange Tokens," BIS Working Papers 1201, Bank for International Settlements.
    5. Bertsch, Christoph, 2023. "Stablecoins: Adoption and Fragility," Working Paper Series 423, Sveriges Riksbank (Central Bank of Sweden), revised 01 Dec 2025.

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    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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