Token-based blockchain financing and governance: A transaction cost economics approach
Token-based blockchain financing and governance: A transaction cost economics approach

Summary/Abstract: The paper presents a conceptual analysis of token-based blockchain financing and governance. Its aim is to explore governance attributes of tokens – a new financial instrument issued by blockchain startups – with a view to understanding deployment of tokens by blockchains and their design. Transaction cost economics (TCE) has been chosen as a theoretical perspective for the analysis. The paper extends the scope of TCE theory by applying it to the blockchain context, and to the study of the role and nature of tokens in particular. It is argued that blockchains aggregate and coordinate the contributions of a distributed network of peers using a set of rules encoded in the blockchain protocol, thus eliminating the need for a hierarchy and day-to-day management, and promising to reduce typical coordination problems plaguing hierarchical organizations. Tokens, and particularly utility tokens, are found to differ fundamentally from equity and debt in their financial and governance attributes as they aim to combine the low cost of the rule-based governance with added adaptability characteristic of equity-based governance. The analysis offers insights for both strategy and entrepreneurship research and practice as it helps identify industries most vulnerable to disruption by blockchains and inform promising blockchain-based business model designs.

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