Blockchain Token Economic Models and Markov Equilibrium

Can stability and growth occur in the same variable at the same time?

Coins as a Medium of Exchange

Coins are the required exchange vehicle for transactions and business operations on blockchain platforms due to protocol design or because they provide a higher convenience yield than alternative currencies.

Markov Equilibrium

The existence of coins as a native currency not only serves technological purposes, as practitioners argue, but, more importantly, advances the growth of the user base through agents’ expectation of future technological progress, larger user base, and higher coin price.

Price Formula

The coin market clearing condition offers a coin price formula, which usually increases in the size of the blockchain user base — the larger the ecosystem is, the higher the trade surplus individual participants can realize by holding coins. From an asset pricing perspective, such model is the first to provide a theoretical foundation for the valuation-to-user base ratio commonly used in the technology industry, especially for firms whose customer base feeds on network effects.

The development path

More specifically, when blockchain technology is inefficient, the growth of the user base in response to technological progress is limited. However, as the community’s size grows, the user base’s growth feeds on itself — the more agents join the ecosystem, the greater the surplus from blockchain trading. When the pool of newcomers is depleted, user adoption begins to slow. In fact, because this model does not account for population growth, as more agents join the ecosystem, fewer newcomers will be included in the future when common blockchain productivity rises even further.

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Abiodun Ajayi

Abiodun Ajayi has more than 6 years of experience in Security and IT architecture. He consults and helps form strategies, perform project feasibility studies.