Technology Innovations

Tokenomics: When Tokens Beat Equity

Katya Malinova, Associate Professor, DeGroote School of Business, McMaster University

Andreas Park, Associate Professor of Finance, Department of Management, University of Toronto

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The Global Risk Institute provided funding for the research and the preparation of this paper. The authors are independent contributors to the Global Risk Institute. They are solely responsible for the content of the article.

This publication is in collaboration with the Rotman FinHub Research Project


In an initial coin offering, investors fund a venture in exchange for tokens that grant rights to future economic output. To many financial industry insiders, tokens have no intrinsic merit and exist only as a way to evade regulations. We demonstrate that generic revenue-based token contracts are indeed economically inferior to equity and lead to over- or under-production. However, an optimally designed token contract, which is a combination of an output presale and an incremental revenue sharing agreement, yields the same payoffs as equity. Moreover, with entrepreneurial moral hazard, tokens can finance a strictly larger set of ventures than equity.