The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Decentralization through Tokenization
Published: 11/23/2022 | DOI: 10.1111/jofi.13192
MICHAEL SOCKIN, WEI XIONG
We examine decentralization of digital platforms through tokenization as an innovation to resolve the conflict between platforms and users. By delegating control to users, tokenization through utility tokens acts as a commitment device that prevents a platform from exploiting users. This commitment comes at the cost of not having an owner with an equity stake who, in conventional platforms, would subsidize participation to maximize the platform's network effect. This trade‐off makes utility tokens a more appealing funding scheme than equity for platforms with weak fundamentals. The conflict reappears when nonusers, such as token investors and validators, participate on the platform.
Decentralization through Tokenization
Published: 11/23/2022 | DOI: 10.1111/jofi.13192
MICHAEL SOCKIN, WEI XIONG
We examine decentralization of digital platforms through tokenization as an innovation to resolve the conflict between platforms and users. By delegating control to users, tokenization through utility tokens acts as a commitment device that prevents a platform from exploiting users. This commitment comes at the cost of not having an owner with an equity stake who, in conventional platforms, would subsidize participation to maximize the platform's network effect. This trade‐off makes utility tokens a more appealing funding scheme than equity for platforms with weak fundamentals. The conflict reappears when nonusers, such as token investors and validators, participate on the platform.