Tokenomics: Dynamic Adoption and Valuation

By Lin William Cong, Ye Li, Neng Wang. The Review of financial studies, 2020

564 citations recorded by the source corpus.

We develop a dynamic asset pricing model of cryptocurrencies/tokens that allow users to conduct peer-to-peer transactions on digital platforms. The equilibrium price of tokens is determined by aggregating heterogeneous users’ transactional demand, rather than discounting cash flows as is done in standard valuations models. Endogenous platform adoption builds on user network externality and exhibits an $S$-curve: it starts slow, becomes volatile, and eventually tapers off. The introduction of tokens lowers users’ transaction costs on the platform by allowing users to capitalize on platform growth. The resultant intertemporal feedback between user adoption and token price accelerates adoption and dampens user-base volatility.

View Paper: https://www.semanticscholar.org/paper/a583b52c35ad2a9a4f433620544db6b413af4ccc

Citations in the corpus

• Fintech and banking: What do we know? (2019, unknown): “Many ICOs are thus platform tokens that are not meant to be general payment substitutes for fiat money (see Cong, Li and Wang (2019)).”
• Central Bank Digital Currency: When Price and Bank Stability Collide (2020, unknown): “The three papers closest to ours are Diamond and Dybvig (1983), Skeie (2008), and Allen et al.”