The token’s secret: the two-faced financial incentive of the token economy

Abstract

Multi-sided platforms are omnipresent in today's digital world. However, establishing a platform includes challenges: The platform utility usually increases with the number of participants. At an early stage, potential participants expect the platform utility to be low and lack an incentive to join (i.e., "chicken and egg" problem). Blockchain-enabled utility tokens hold the promise to overcome this problem. They supposedly provide a suitable financial incentive for their owners to join the platform as soon as possible. In the first half of 2018, investors seemed to believe in the presumption and spent more than US$ 17.6 billion in token sales. To date, we know little about this financial incentive in the context of the token economy. For this purpose, we model the token value development and the associated incentives in a multi-sided blockchain-enabled platform. The resulting findings suggest that blockchain-enabled utility tokens can help to overcome the "chicken and egg" problem. However, these tokens lead to contradictory incentives for platform participants, and can even inhibit platform usage. The contribution of our work is twofold: First, we develop one of the first models for token value development. Second, our research contributes to a deeper understanding of the utility token's financial incentive.

Token Economy

“…Future intermediaries need to determine, for example, adequate market prices through (sensor) data analytics around production machinery or football players. They will furthermore need to understand new market dynamics that come with utility tokens that are not only an object of investment but also a consumable means to run a service (Drasch et al 2020). Finally, it is possible to store valuables like gold or security papers in your own safe.…”

Electronic Markets on business model development

“…Benedict J. Drasch, Gilbert Fridgen, Tobias Manner-Romberg, Fenja M. Nolting and Sven Radszuwill describe that utility tokens are useful in providing value already in the early development phases of two-sided platforms. For this purpose, the authors modeled a blockchain-based platform to analyze the token value in the phases of platform development and platform operation (Drasch et al 2020).…”

A Chemical Analysis of Hybrid Economic Systems—Tokens and Money

“…There have been recent studies on the consequences of certain types of tokens being incorporated into business models and networks, e.g., Initial Coin Offerings (ICOs) in startups [25,26] and on multi-sided platforms, such as Amazon, Uber, and Airbnb [27], or ERC20-compatible tokens in token networks [28].…”