Blockchain and Tokenomics
Friday, Jan. 4, 2019 10:15 AM - 12:15 PM
- Chair: William Cong, University of Chicago
Cryptocurrencies: Stylized Facts on a New Investible Instrument
AbstractWe present stylized facts on the asset pricing properties of cryptocurrencies: summary
statistics on cryptocurrency return properties and measures of common variation for secondary market returns on 222 digital coins. In our sample, secondary market returns of all other currencies are strongly correlated with Bitcoin returns. We also provide some investment characteristics of a sample of 64 initial coin offerings (ICOs).
A Theory of ICOs: Diversification, Agency, and Information Asymmetry
AbstractWe develop a theory of financing of entrepreneurial ventures by Initial Coin Offerings (ICOs).
Consistent with recent regulatory developments, our model views crypto tokens as securities.
Selling tokens, which represent claims to the venture’s future revenue, allows an entrepreneur
to transfer some of the venture risk to diversified investors without diluting her control rights.
This, however, leads to an agency conflict between the entrepreneur and investors that manifests
itself in underinvestment. We show that ICOs can dominate traditional venture capital
(VC) financing when VC investors are under-diversified, when idiosyncratic component of venture
risk is large enough, when the payoff distribution is sufficiently right-skewed, and when the
degree of information asymmetry between the entrepreneur and ICO investors is not too large.
Overall, our model suggests that ICOs can be a viable financing alternative for some but not
all entrepreneurial ventures, and that while regulating ICOs as security offerings is desirable,
banning them outright is not.
Tokenomics: Dynamic Compensation for Decentralized Contribution
AbstractCoin offerings not only represent a novel means for financing platform-based startups, but also provide incentives for early and key contributors such as program developers or expert advisors, especially projects involving decentralized networks. By serving as the means of payment in decentralized networks, tokens facilitate fast adoption and continued advancement, and their price depends on users' transaction needs and expectation of token price change, as well as the network scale. Unlike standard financing, tokens can accelerate user acquisition and compensate dispersed contributors and ensure system continuity beyond founders, without relying on user subsidies or fees. Yet such functions hinge on the design of token supply and distribution. More broadly, tokens can be viewed as an alternative to cash-flow based securities in corporate finance in the age of financial democratization, sharing economy, and on-demand labor.
Sabrina T. Howell,
New York University
George Mason University
University of Rochester
- E4 - Money and Interest Rates
- G1 - General Financial Markets