Global Blockchain Survey 2020 | Blockchain Technology | Deloitte Netherlands

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Tokenization - The future of the platform business model

Sustainable growth through blockchain-based incentives

Platform business models create value between participants via network effects, but they face challenges in their subsidy-based models. Blockchain-based tokenization is an alternative incentive mechanism that addresses these by fostering broad stakeholder collaboration and participation on the platform. Its potential makes it a worthy and serious consideration of entrepreneurs and platform business owners.

Written by Gys Hough and Caron Schaller

Introduction

Deloitte Netherlands and Gys Hough, managing partner of digital asset investment advisor Coinstone Capital, have joined forces to write a point of view on blockchain-based tokenization and platform business models. Tokenization is a high-potential alternative to the subsidy-based approach to network effect generation. It supports network effect generation through co-ownership and addresses additional concerns that stood in the way of platform business models and improved sustainability.

Read our point of view here or via the download button below. 

A tale of network effects

Platform business models have become all but the de facto business model for the digital economy. Platforms create value by matching multiple participants and coordinating their transactions and cooperation. They often provide entirely new value propositions, apply novel revenue models, or build on the assets of private individuals. A positive network effect occurs when the value that a customer on one side realizes from the platform increases with the number of customers on the other side. The activation of a sustainable and robust network effect is essential for a platform to grow and dominate a market in a winner-takes-all dynamic.

Read our POV on Tokenization - The future of the platform business model

The subsidy conundrum

Until now, the go-to method for network effect generation has been subsidizing the demand and supply sides of a network. As an example, a ride-hailing service would offer passengers cheap rides while also paying the taxi driver above-market rates. 

This approach is not only highly capital intensive but can also open the firm up to fraudulent activities. Since competing platforms also use subsidies, passengers and taxi drivers will respond to a fall in subsidized rates by migrating to the next platform that provides higher subsidies; a cycle that requires continued financial support for the platform, especially as competition intensifies. This industry-wide dependence on subsidies generates a race-to-the-bottom dynamic and negatively impacts the overall viability and profitability of platform businesses.  

To tokenize or not to tokenize

Tokenization can enable contributors to become co-owners through their involvement in the platform. Not only is this an incentive mechanism to generate network effects, but contributors’ token earnings would function as an effective strategy against multi-homing and disintermediation by aligning the motivations of contributors with those of the platform. While the advantages of this new approach will arguably make it the future of business platform models, tokenization does come with some regulatory, tax, and usability implications.

Assuring responsible business

Platform businesses experience a winner-takes-all dynamic with one platform eventually gaining monopolistic power. This power could be misused to pay suppliers below-market rates or subject users to drastic changes. By enabling co-ownership of a platform, tokenization not only provides suppliers the benefits from the growth of the platform but also a say in its governance. Due to the token also being traded on exchanges platforms, owners will be incentivized to focus on long-term token holder value rather than extracting short-term benefits.

Finding the right fit

The potential of this novel approach leads us to deem it worthy of serious consideration by entrepreneurs and platform business owners. Reach out to us to discuss the evolving momentum of blockchain and digital assets, prioritizing initiatives, and managing the opportunities and pain points associated with blockchain adoption efforts.

More information

Do you want to have more information on Blockchain technology or would like to discuss opportunities in becoming a more responsible business? Please feel free to contact Floris van Lieshout or Tommie van der Bosch via the contact details below.

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