Token Incentive and Blockchain Developer Contribution

The success of a blockchain venture critically hinges on the contribution of blockchain developers. Blockchain ventures are typically developed as open-source projects, where some developers contribute voluntarily, whereas others are incentivized by token rewards to participate. We examine whether such token incentives are effective in motivating developers to contribute, in a market teeming with opportunistic activities. To address this question, we leverage a unique setting where token incentives are substantially affected during pump-and-dump (P&D) events. We examine how developers react to this impact and its potential influence on the blockchain development community. Utilizing the most granular code-development-level data from GitHub, we construct two metrics to gauge developer contributions: contribution quantity and originality. We estimate the effect of token incentives on contributions through the interactive fixed effects counterfactual model. The results imply that developers contribute less frequently and with lower code originality to the projects due to token distortion after a P&D event. Moreover, we identify a moderation effect of varying degrees of decentralization. The findings suggest that a lower degree of decentralization can amplify the negative effect of incentive distortion, further diminishing developers’ motivation to contribute. Our research reveals the complexities and latent risks associated with token incentives in blockchain ventures within the current market, providing insights into designing a more effective incentive system.

History: Xin (Sean) Xu, Senior Editor.

Supplemental Material: The online appendices are available at https://doi.org/10.1287/isre.2023.0480.