Redeemable Platform Currencies

Can massive online retailers such as Amazon and Alibaba issue digital tokens that potentially compete with bank debit accounts? There is a long history of trading stamps and loyalty points, but new technologies are poised to sharply raise the significance of redeemable assets as a store of value. Here we develop a simple stylized model of redeemable tokens that can be used to study sales and pricing strategies for issuing tokens, including ICOs. Our central finding is that platforms can generally earn higher revenues by making tokens non-tradable unless they can generate a sufficiently high outside-platform convenience yield.