I study the optimal design of transaction fees and seigniorage for a Proof-of-Work cryptocurrency. Commodity merchants need blockchain miners to record their payments and secure the blockchain by remaining active. Fees make miners willing to process merchants’ transactions by compensating for the risk that doing so slows down block transmissions making blocks invalid. Seigniorage convinces miners to operate when pending transactions are scarce. Both seigniorage and fees are necessary. As fees are distortionary for merchants, an optimal design uses them only as required by incentive-compatibility.
A Theory of Crowdfunding Dynamics (with Matthew Ellman)
This paper develops a dynamic model of crowdfunding to characterize success rates and welfare, identify optimal transparency and design policies and explain bidding profiles. Inspection costs have two effects on profiles: (1) decreasing pivotality, driven by reduced scope for strategic complementarity as the deadline nears, pushes the slope downwards; (2) a Jensen effect from bidding news also pushes the slope downwards for concave cost distributions, but upwards for convex costs. Combining can generate a U-shape. Non-disclosure of funding progress always yields higher welfare than full transparency given homogeneous costs. However, cost heterogeneity favours disclosure by enabling early bidders to activate otherwise passive, higher cost bidders. We also optimize pricing and thresholds under success-maximization.
Work in Progress
A Note on the Microeconomic Foundations of Automated Market Makers (with Julien Prat)
Crowdfunding with Endogenously Timed Moves (with Matthew Ellman)