Andreas Park PRO
Professor of Finance at UofT
Katya Malinova Andreas Park
\(x_i\)
\(x_j\)
\(x_k\)
\(c\)
price
demand
marginal cost
marginal revenue
\(q^m=(x-c)/2\)
\(MR=x-2q\)
\(p(q)=x-q\)
general idea: sell future output
two approaches for token sales
price
demand
marginal cost
marginal revenue
Entrepreneur does not internalize the effect of an extra output unit on the token value for the tokenholders!
Result: overproduction
price
demand
marginal cost
marginal revenue
Result: underproduction
NB: Similar to Chod and Lyandres (2018)
\(c\)
\(MR\)
Presell \(t\) tokens.
As with equity, the entrepreneur receives the full NPV.
The entrepreneuer produces optimally at \(q^t=q^m\)
If \(q<t\) \(\Rightarrow\) redeem at rate \(t/q\) and tokenholders receive refund of \(c(t-q)\).
If quantity produced \(q>t\), then share \(\alpha_t\) of revenue from incremental \(q-t\) tokens with tokenholders
Idea:
entrepreneur can influence expected demand
with effort
without effort
assume \[\textit{NPV}(\text{effort})>0>\textit{NPV}(\text{no effort})\]
Investors (equity or token holders) only finance the project if the entrepreneur undertakes the effort
Key insight: a token contract incentivizes effort better than equity (similarly to canonical debt vs. equity insights)
Optimal token contract has debt features:
@financeUTM
andreas.park@rotman.utoronto.ca
slides.com/ap248
sites.google.com/site/parkandreas/
youtube.com/user/andreaspark2812/
By Andreas Park
This deck is for a 15-minute presentation of my research paper with Katya Malinova during the 2019 Toronto Blockchain Week Algorand event