Token Incentives in a Volatile Crypto Market : The Effects of Token Price Volatility on User Contribution

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)683-711
Journal / PublicationJournal of Management Information Systems
Volume40
Issue number2
Online published17 Jun 2023
Publication statusPublished - 2023

Abstract

Crypto tokens, issued and managed via smart contracts, function as rewards in blockchain systems to encourage user participation. Distinct from monetary incentives, token incentives are uncertain in reward magnitude due to the large swings in token prices on crypto markets. By focusing on token price volatility, this study investigates how the reward uncertainty affects user contribution in a tokenized digital platform. Our empirical setting is Steemit, a platform where bloggers write posts and share token rewards based on their posts’ popularity. We find that while high token price volatility induces a large volume of blog posts, it diminishes post quality. The dichotomous effects are explained via two mechanisms: users’ direct reactions to reward uncertainties and their indirect reactions, mediated by altered token preference amid volatility shocks. Deeply exploring this dynamic process, our results reveal that token price volatility facilitates a platform’s network short-term effect but impairs long-term user creativity. Our empirical findings thus extend the literature on blockchain economics and cryptocurrencies and have practical implications for the design of incentive mechanisms on tokenized digital platforms. © 2023 Taylor & Francis Group, LLC.

Research Area(s)

  • blockchain prices, Crypto markets, digital tokens, incentive mechanism design, price volatility, smart contracts, token incentives, token prices, tokenized digital platforms, user contribution