Financing Platforms With Cryptocurrency: Token Retention, Sales Commission, and ICO Caps
Publication Date
8-1-2022
Abstract
Centralized platforms (e.g., Uber) rely primarily on sales commission (aka, service fees) to generate revenues whereas decentralized blockchain-based startups (e.g., Filecoin) often forego these in favor of token retention. We show that both levers help to overcome moral hazard and incentivize platform building, but they aren't perfect substitutes and imply a strategic trade-off: the commission approach generally leads to higher long-term profits for the platform founders, whereas token retention can lead to higher service levels, benefiting the service providers and users. Furthermore, the two levers also require different ICO designs when raising capital: commission works best when paired with uncapped ICOs (i.e., unlimited token supply) whereas token retention works best with capped ICOs under certain conditions. These findings offer some guidance and explanations for the operating and ICO design choices of decentralized platforms.
Document Type
Article
Disciplines
Business Administration, Management, and Operations
DOI
10.2139/ssrn.3776411
Source
SMU Cox: IT & Operations Management (Topic)
Language
English
