Token Financing vs. Equity and Crowdfunding

Abstract

We present a stylized model of three entrepreneurial financing methods based on two tradeoffs. First, token financing and crowdfunding reveal consumer-investors’ demand for the product prior to investment, but upfront purchase weakens the entrepreneur’s incentive to deliver. Second, token financing permits a bubble component in token value, but reduces consumer surplus because tokens are stored rather than consumed. We characterize the conditions under which entrepreneurs prefer each financing method. We show that token financing can fund socially efficient projects that cannot be funded through equity or crowdfunding, but leads to suboptimal consumption. Finally, we propose an implementable hurdle condition for regulators.

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Replaced by

Ulrich Hege, Edmond Baranes, and Jin-Hyuk Kim, “Token Financing vs. Equity and Crowdfunding”, Economics Letters, 2026, forthcoming.

Reference

Ulrich Hege, Edmond Baranes, and Jin-Hyuk Kim, “Token Financing vs. Equity and Crowdfunding”, TSE Working Paper, March 2026.