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Blockchain and the Economics of Crypto-tokens and Initial Coin Offerings

Author

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  • John P. Conley

    () (Vanderbilt University)

Abstract

Blockchain startups have embraced initial coin offerings (ICOs) as a vehicle to raise early capital. The crypto-tokens offered in these sales are intended to fill a widely varied set of roles on different platforms. Some tokens are similar to currencies, others are more like securities, and others have properties that are entirely new. Each company's technological vision calls for a token with unique properties and uses. The main point of this paper is that designing a successful token must take into account certain aspects of monetary theory, financial economics, and game theory. Failing to do so can put an otherwise excellent project at risk. We also explore what economics tells us about how to assess the value of tokens offered for sale, how startups should structure their ICOs, and what the implications of assigning various roles to tokens on a platform might be.

Suggested Citation

  • John P. Conley, 2017. "Blockchain and the Economics of Crypto-tokens and Initial Coin Offerings," Vanderbilt University Department of Economics Working Papers 17-00008, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:vuecon-sub-17-00007
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    File URL: http://www.accessecon.com/pubs/VUECON/VUECON-17-00008.pdf
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    Cited by:

    1. Moon Soo Kim & Jee Yong Chung, 2018. "Sustainable Growth and Token Economy Design: The Case of Steemit," Sustainability, MDPI, Open Access Journal, vol. 11(1), pages 1-12, December.
    2. Adhami, Saman & Giudici, Giancarlo & Martinazzi, Stefano, 2018. "Why do businesses go crypto? An empirical analysis of initial coin offerings," Journal of Economics and Business, Elsevier, vol. 100(C), pages 64-75.
    3. Lennart Ante & Philipp Sandner & Ingo Fiedler, 2018. "Blockchain-Based ICOs: Pure Hype or the Dawn of a New Era of Startup Financing?," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 11(4), pages 1-19, November.
    4. Andreas Hanl, 2018. "Some Insights into the Development of Cryptocurrencies," MAGKS Papers on Economics 201804, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

    More about this item

    Keywords

    Blockchain; Crypto-tokens; Cryptocurrency; Initial Coin Offering; Bitcoin; KYC; AML; ICO;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets

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