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Tokenomics: When Tokens Beat Equity.

Authors :
Malinova, Katya
Park, Andreas
Source :
Management Science; Nov2023, Vol. 69 Issue 11, p6568-6583, 16p
Publication Year :
2023

Abstract

In a token offering, investors fund a venture in exchange for tokens that grant rights to future economic output. To many financial industry insiders, tokens have no intrinsic merit and exist only as a way to evade regulations. We demonstrate that generic revenue-based token contracts are indeed economically inferior to equity and lead to over- or underproduction. However, an optimally designed token contract, which is a combination of an output presale and an incremental revenue-sharing agreement, yields the same payoffs as equity and debt. Moreover, with entrepreneurial moral hazard, tokens can finance a strictly larger set of ventures than equity. This paper was accepted by Will Cong, Special Section of Management Science: Blockchains and Crypto Economics. Funding: This work was supported by the Social Sciences and Humanities Research Council of Canada and Canadian Securities Institute Research Foundation [Grants 20013075 and 435-2017-064]. Financial support from the Global Risk Institute and the Mackenzie Investment Chair in Evidence-Based Decision Making is also acknowledged. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
00251909
Volume :
69
Issue :
11
Database :
Complementary Index
Journal :
Management Science
Publication Type :
Academic Journal
Accession number :
173603557
Full Text :
https://doi.org/10.1287/mnsc.2023.4882