Tokenomics: Dynamic Adoption and Valuation

• DOI: 10.1093/rfs/hhaa089
• Publication Date: 2020-08-05T19:31:29Z
• Authors: Lin William Cong; Ye Li; Neng Wang
• Keywords: Dynamic Pricing; Monetization; Digital currency; Stylized fact

Abstract 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 tokens is determined by aggregating heterogeneous users’ transactional demand, rather than discounting cash flows as done in standard valuations models. Endogenous platform adoption builds user network externality and exhibits an $S$-curve: it starts slow, becomes volatile, eventually tapers off. introduction lowers transaction costs the allowing capitalize growth. resultant intertemporal feedback between token accelerates dampens user-base volatility.