07 Nov 2018
We provide a dynamic asset-pricing model of cryptocurrencies/tokens on platforms and highlight their roles on endogenous user adoption. Tokens facilitate transactions among decentralized users and allows them to capitalize future growth of promising platforms. Tokens thus can accelerate adoption, reduce user-base volatility, and improve welfare. Token price increases non-linearly in platform productivity, users’ heterogeneous transaction needs, and endogenous network size. The growth of user base starts slow, becomes explosive and volatile, and eventually tapers off. Our model can be extended to discuss platform token supply, cryptocurrency competition, and pricing assets under network externality.