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Blockchain platforms are economies written in code. The goal of any blockchain-based platform is to intermesh participants — such as buyers, sellers, miners, voters, etc. — to transact and create value. Participants in a blockchain-based marketplace are focused primarily on buying and selling goods or services for mutual benefit. For example, a miner in a permission-less blockchain seeks to make a profit trading its computational power and bandwidth resources for block rewards and transaction fees.

As we have discussed previously, economies require multi-dimensional designs in order to function effectively. …

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I often hear people in the blockchain space assert some form of the following argument: if a platform creates a native token, such as a utility token that can be used to purchase services provided on the platform, the creation of the token by itself will align the of users to act in the best interests of the platform. …

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In our previous post, we explained that pay for performance is useful when key desired outcomes cannot be specified in advance. Under those conditions, pay-for-performance systems allow us to measure performance after the fact and reward contributors accordingly.

When creating a pay-for-performance scheme, the most important design element is the choice of . A well-chosen performance metric can align the incentives of contributors with the goals of the platform, while a poorly chosen metric can be ineffective at best and encourage destructive behavior at worst.

Poorly chosen performance metrics abound. Even top companies with a plethora of resources are…

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In a previous post, we discussed how incentive design is a much broader field than most of us probably think. The category of incentives that most often comes to mind when the topic arises is pay-for-performance incentives, which will be the focus of our next few posts in this series.

Many blockchain platforms attempt to crowdsource activities and resources by creating pay-for-performance systems that reward participants with tokens. One example of this is the block rewards used by Bitcoin.They …

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Blockchain is being used for new and inventive ways of dividing assets and allowing shares of those assets to be tracked and traded.

Whether it is commercial real estate, art, or even oil, a large variety of projects are popping up to offer new classes of financial instruments in the form of asset-backed security tokens.

The idea behind these projects is to increase the liquidity of these markets by making them available to smaller investors and making shares easier to buy and sell.

There is a very important and overlooked question when it comes to tokenizing assets: does the token…

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Founders of blockchain platforms must understand the nuances of incentives — what they are, what they aren’t, how they work and how they can go wrong.

Incentives are what encourage communities of participants to cooperate and create the value that will ensure the success of their platform.

The economics of incentives are frequently misunderstood. A well-known senior economist has told me, “when a person tells me their company does not use incentives, I tell them they’re wrong.”

What are incentives?

An incentive is any design element of a system that influences the behavior of system participants by changing the relative costs and benefits…

Christian Catalini and Joshua Gans’s paper, , presents a framework for comparing tokens sales as a funding mechanism to traditional equity sales. They highlight some ways in which a token sale might be more (or less) attractive to a blockchain venture than raising traditional funding.

One important feature of an ICO that they underscore is its ability to leverage network effects — which are vital to the adoption and growth of platforms — to increase the probability of a successful raise.

An ICO, unlike an equity sale, can help a startup identify…

Earlier this year, Christian Catalini of MIT and Joshua Gans of University of Toronto, released a paper, , that analyzes ICOs as a financing mechanism for a blockchain venture. They examine the attractiveness of this fundraising technique both from the point of view of the startup and from the point of view of potential investors.

The paper contains many novel findings. One critical idea from the paper that is applicable to blockchain startups looking to raise money is the tradeoff between creating a token that is attractive asan and…

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Coordination games are strategic games with multiple Nash equilibria. A Nash equilibrium, as described in a recent post of ours, titled Nash Equilibria and Blockchain Platforms, is an outcome of a strategic game in which none of the participants want to change their choice of actions, given the actions of the other players.

In our previous post, we emphasized how important it is for a platform’s desired outcome to be an equilibrium. When there are multiple equilibria, all players in the game need to coordinate on the Nash equilibrium in order for the benefits of equilibrium to be realized…

When I taught strategy to MBA students, an important concept for students to understand was the . Why are they going to choose your product or service instead of your competitor’s? This is the foundation on which any competitive advantage sits. If blockchain technology is ever going to achieve mass adoption, these questions must be asked.

As I type this, Mark Zuckerberg, CEO of Facebook, is testifying to congress about a breach of privacy on his platform perpetrated by Cambridge Analytica.

Privacy is one of the core features that blockchain technology can provide.

Public concerns relating to…

Cathy Barrera, PhD

Founding Economist at Prysm Group (, blockchain economics and governance design services

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