Blockchain Platform Design

Blockchain platform with a native utility token have played an integral part in the blockchain industry's success over the last few years. Typically, the platform's tokens (i) allow users to access the platform's services and (ii) are paid out to validators for participating in the underlying proof-of-stake consensus protocol. This paper analyzes a dynamic general equilibrium model of such a platform. The platform offers a reward path to validators and a path of service consumption values to users and then repeatedly interacts with them in a spot market to finance service provision. Due to the platform's lack of pricing power, users receive positive rent in the optimal platform design and there is underprovision of service quality. However, service provision is approximately first-best when the number of users is large. In any optimal design, there is an initial coin offering (ICO) in the first round. Some optimal designs create more ICO volume than others. Also, in later rounds, the designer might be either a net buyer, a net seller, or remain passive on the market