Institute of Finance
Date: / -
Seminar Title: Token-based Corporate Finance
Lin William Cong, University of Chicago Booth School of Business
12:15 - 13:30
Room A-33 red building
We develop a dynamic corporate finance model of platform economy, where tokens are issued by the platform and used as means of payment among users, contributors, and entrepreneurs. Users demand tokens for their transactions on the platform. Dispersed record-keepers, open-source developers, crowdfunders, etc., provide on-demand contributions for platform development in exchange for token compensation. Platform owners such as founding entrepreneurs maximize their seigniorage by managing tokensupply dynamics, subject to the conditions that users break even inter-temporally and the markets for on-demand contributions are competitive. We characterize the dynamic token allocation strategy and its implications on user base dynamics, endogenous platform growth, as well as the level and volatility of token price and their dependence on broader liquidity conditions. A key mechanism is the divergence in token valuation of insiders (owners) and outsiders (users and contributors) – when the wedge falls, the platform pays more tokens for contributions; when it rises to an endogenously determined threshold, entrepreneurs optimally burn tokens out of circulation to stabilize token value.