Fundamental Pricing of Utility Tokens

We propose a framework for the fundamental valuation of utility tokens. We introduce a requirement that is reminiscent of the cash-in-advance constraint, stipulating that services have to be accessed immediately. Our model endogenizes the velocity of token circulation, yielding a microfounded pricing formula that we calibrate using Ethereum’s adoption data. The equilibrium price path goes through two successive phases: initially, a portion of the tokens are held for purely speculative motives, and later on, all tokens are held with the intention of being used.

This paper has been This paper was accepted by Will Cong for the Virtual Special Issue on Digital Finance.

Funding: This project has benefited from the financial support of the academic chair Blockchain@Polytechnique. This research has been conducted as part of the project Labex MME-DII [ANR11-LBX-0023-01].

Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.00566.