1) Tokens can serve as new mechanisms to govern blockchain platforms by functioning as incentive mechanisms, access mechanisms, and coordination mechanisms. As incentive mechanisms, tokens can reward contributions and discourage bad behavior. As access mechanisms, tokens can be used to access platform services and functionality. As coordination mechanisms, tokens can define and coordinate the behavior of different actors. 2) Tokens influence the development of blockchain platform ecosystems by creating new participation structures and network effects. Tokens allow developers and users to participate in a platform's success through equity. Tokens also leverage new kinds of network effects by bridging low initial user participation. 3) Tokens may help create self-governing and organic ecosystems by introducing new forms of

1. 1
The Role of Tokens as Boundary
Resources to Govern Blockchain
Ecosystems
Nikolaus Lipusch
Blockchain Summit- National University of Singapore
06.12.2018

2. 2
Agenda
1. Overview
2. Phenomenon
3. Research Context
Theoretical Background
5. RQ‘s & Methodology
6. Findings

3. 3
Overview

4. 4
Overview
1.) What?
- Tokens as new Mechanisms to Govern Platforms
2.) Why?
- To solve common challenges that are associated with platform
governance (e.g. third-party development, chicken-egg problem
etc.)
3) For whom?
- Researchers who try to understand how these new mechanisms
influence platform governance and development

5. 5
Phenomenon

6. 6
Tokens : A Brief History
• According to the Cambridge dictionary
tokens denote “a round, metal or plastic
disk which is used instead of money in
some machines”. Hence, tokens can be best
understood as a voucher or a gift card that
can be used to consume a variety of
services within a certain context (e.g. a
shop, a fair, a casino, a vending machine or
a platform)
• Tokens originally emerged in the fields of
behavioural economics and psychology with
the aim to modify behaviour of
institutionalized individuals (Kagel, 1972;
Winkler, 1971).

7. 7
Bitcoin: A Token to Transfer Value
© 2014 | Nikolaus Lipusch
• With bitcoin Satoshi Nakamoto introduced one of the first crypto-
tokens in 2008

8. 8
Tokens: A New Phenomenon
$0.1B
$0.4B
$2.8B
2016/Q4 2017/Q4
Investment in Blockchain Start-ups in US$m
Venture Capital ICOs
Top ICOs 2017
Hdac US$ 258M
Open source platform for
IoT solutions
Filecoin US$ 257M
Decentralized storage
network
EOS US$ 185M
Open source platform for
scalable decentralized
apps
Paragon US$ 183M
Decentralized
marketplace for the
cannabis industry
During 2015 – 2017 a rising number of companies created and issued
their own tokens via so called “Initial Coin Offerings” to finance the
development of their own blockchains or blockchain applications.
Blockchain start-ups absorbed 5X more capital via
ICOs than equity financings in 2017
Source: cbinsights 2018

9. 10
Token Issue Mechanisms
• ICOs
• Mining
Tokens
Cryptocurrency
Token -
Issuer
Token -
Buyers
Platform
Owner Investors
Tokens
Computing Power
Token -
Issuer Miners
Platform
Owner Operators

10. 11
Types of Tokens – Utility Tokens vs Security Tokens
© 2014 | Nikolaus Lipusch
• Utility tokens are tokens that entitle its holders to access a
platforms service or application. Their main purpose is
utilitarian. e.g. Filecoin
• Security tokens are tokens that give their owner the right
to implement his investment interests. It may be the right
to participate in a legal entity, capital, profit e.g. tZero

11. 12
Types of Tokens – Native Tokens vs App Tokens
© 2014 | Nikolaus Lipusch
• Native tokens are tokens that are inherent to the
blockchain and that are used to access the blockchain (in
particular they are used to pay for computation on the
blockchain). E.g. Ether
• App tokens are tokens that used in the applications that
lie on the top of the blockchain. They are used to acess a
certain application that is build on the blockchain and are
interoperable with the native token of that blockchain. E.g.
Numeraire

12. 14
Reseach Context

13. 15
Research Context – The Blockchain
Blockchain
Cryptography Distributed Systems
transaction order
• Elliptic curves
• Discrete Logarithms
• 3 x 5 -> 15
• ? X ? <- 9.515.460….
public key
private
key
Inp Outp
Digital signature
• Network of
Computers (fault
tolerant)
• Consensus
Algorithms (closed
set of machines)
• Proof of Work
Validation of
transactions
transaction

14. 16
Research Context – Blockchain Ledger
Definition: „The blockchain denotes a decentralized, shared
ledger that uses chronological, encrypted and chained blocks
to store verifiable and synchronized data across a peer-to-
peer (P2P) network” (Schlegel, Zavolokina, & Schwabe, 2018).
Block 22 Block 23 Block 24
Hash of the
previous block
Hash of the
previous block
Hash
Hash
Transaction z
Transaction y
Transaction x
.
.
.
.
.
.

15. 17
Research Context – How the Blockchain Works
v
User A wants to send
money to user B
The transaction gets
stored in a block1 2 3
The block is
broadcasted to the
network
User B receives the
money from User A 6 5 4
The network validates
and approves
transactions within the
block
The block is added to the chain
which represents a permanent,
imutable, and transparent
record of transactions

16. 19
Research Context – Public vs. Private Blockchains
Public Private
Access Open read/ write Permissioned read and/or
write
Speed Slower Faster
Security Proof-of-Work/ Proof-of-
Stake
Pre-approved participants
Identity Anonymous/Pseudonym
ous
Known identies
Asset Native assets Any assets

17. 20
Theoretical
Background

18. 22
Theoretical Background – Platform Boundary
Resources
- Boundary object, which is an artifact plastic enough to cut across multiple
social worlds by providing enough structure to support several parties and
their employed activities within separate social worlds (Bergman et al. 2007;
Star and Griesemer 1989).
- Platform boundary resources allow third-party developers to build
applications on top of the software platform (Ghazawneh & Henfridsson 2013).

19. 23
Theoretical Background – Functions of Platform
Boundary Resources
• Platform Expansion
– E.g. Application Programming Interfaces (APIs), Software
Development Kits (SDKs)
• Platform Control
– E.g. appliction review processes, license agreements
• Other Functions: monetizing, resourcing, securing etc. (see
Ghazawneh & Henfridsson 2013)

20. 24
RQ‘s &
Methodolgy

21. 25
Research Question
RQ1: What is the role of tokens as platform boundary
resources?
RQ2: How will these platform boundary resources influence the
development of blockchain platform ecosystems?

22. 27
Case - Ethereum
• Ethereum was launched by Vitalik Buterin in 2015
• Vitalik was a former bitcoin developer who created
Ethereum with the idea in mind to extend the
functionality of the blockchain (single purpose
blockchain)
• Ethereum constitutes a multipurpose platform that
consists of a blockchain and decentralized applications
(so-called DAPPs) that run on top of this blockchain
• Turing-complete programming language
• Smart contracts stipulate conditions for an application
to run (i.e. applications can be fully automated)
• Tokens with multiple functionalities

23. 28
Case – Ethereum Architecture
At the basis of Ethereum are 2nd layer protocols that can
be used to develop and run a variety of decentralized
applications known as DAPPs

24. 29
Case – Ethereum Architecture
The interactions between different layers and actors of
the platform are governed by tokens that are fungible (i.e.
they are interoperable)
• Ether = Ethereum's native token
• App tokens: e.g. IDEX, Bancor, Augur, Numerai, Cryptokitties

25. 30
Ethereum by Numbers – Transactions per Day 2015
- 2018
© 2014 | Nikolaus Lipusch

26. 31
Ethereum by Numbers – Cumulative Address
Growth 2015 - 2018
© 2014 | Nikolaus Lipusch

27. 32
Ethereum by Numbers – Ether Supply 2015 - 2018
© 2014 | Nikolaus Lipusch

28. 35
Ethereum - Selected Instruments of Platform
Development
© 2014 | Nikolaus Lipusch
• ICOs
• DEV Grants
• Bug Bounties
• Ethereum Improvement Proposals (EIPs)
• Token Standards (ERC20)
• Mining Network

29. 36
Ethereum‘s Growing Strategy
• July 2014/ Ethereum conducted an ICO
• 42-day pre-sale in which 60,102,216 Ether tokens were
sold to investors with a corresponding value of US$
18,439,086.
• July 2014 – May 2015/ Ethereum created
several endowment pools and programs
to reward early platform contributors
• e.g. DEVGrants Programm (US$ 1000 to US$10000 to
support Ethereum projects)
• e.g. Olympic testnet (25.000 Ether for users who managed
to break the network)
• July 2015/ Etherum Frontier Release
• Ethereum created its first mining network (under the
Frontier release) that allowed users to earn tokens by
providing their computing power to execute smart
contracts and to secure the network.

30. 37
• February 2016/ Ethereum Homestead
Release
• Ethereum introduces ist ERC20 token-standard which
allows the broader masses to create their own DAPPs on
the network
• Feb. – June 2017/ Several Exchanges
adopt Ethereum
• eToro and AVATrade list Ether on their exchange
• The Ether prices climbs to US$ 400 on June 2017 (i.e.
+5001% since Jannuary 2017)
• June 2017/ Broad adoption of Ethereum
ERC20 token standard
• e.g. Brave manages to collect US$ 35 million for its
Ethereum-based webbrowser.
• e.g. Bancor manages to $135 million worth of Ether to built
a decentralized market maker
Ethereum‘s Scaling Strategy

31. 38
• January 2018/ Ethereum hits all-time high
• 13.000% increase in value since Jannury 2017
• Sept 2018/ Ethereum continues to grow
despite price decreases
• As of 22 Sept 2018 Ethereum has 1901 DAPPs
• >40 mill unique adresses
• >11.000 daily active users per day
• >480.000 transactions per day
Ethereum‘s Scaling Strategy

32. 39
Findings

33. 40
RQ1: What is the role of tokens
as platform boundary resources?

34. 41
Results – Tokens as Boundary Resources
© 2014 | Nikolaus Lipusch
Incentive
Mechanism
Coordination
Mechanism
Access
Mechanism
Token
mechanisms that
help to
incentivize
platform
contributions
Token
mechanisms that
help to access
platform services
and utilize
platform
functionality
Token
mechanisms that
help to define
and coordinate
behavior of
different platform
actors.

35. 43
Controlling Capabilities
• Using tokens (e.g. proof of
stake) as staking
mechanism to discourage
unfaithful behavior. e.g.
Miners (i.e. users) who
validate trustful transactios
earn more tokens, miners
who validate untrustful
transactions lose tokens
Expanding Capabilities
• Using tokens to expand
ownership in the platform
thereby encouraging app
development e.g. platform
developers can issue
security tokens to grant
ownership in the platform
to be created
© 2014 | Nikolaus Lipusch
Results – Tokens as Incentive Mechanism
Token mechanisms that help to incentivize platform contributions

36. 44 © 2014 | Nikolaus Lipusch
Results – Tokens as Incentive Mechanism
Token mechanisms can help to incentivize good work and to
disincentivize bad work

37. 45 © 2014 | Nikolaus Lipusch
Results – Tokens as Incentive Mechanism
Token bonding curves can be used to attract early users – early
investments are rewarded to a higher degree

38. 46
Controlling Capabilities
• Using tokens as access
hurdle to weed out free
riders and to attract
committed users e.g. users
have to either buy in or to
fulfil some work to earn
some tokens and hence be
eligible to the platform
services
Expanding Capabilities
• Using tokens (i.e. set of
functions inherent to token
standards) to define and
access new platform
functionality e.g. app
developers can create their
own tokens to monetize the
development of their
applications (ERC20 token)
© 2014 | Nikolaus Lipusch
Results – Tokens as Accesss Mechanism
Token mechanisms that help to access platform services and
utilize platform functionality

39. 47 © 2014 | Nikolaus Lipusch
Results – Tokens as Access Mechanism
To elicit a transaction on Ethereum a User has to pay Gas i.e.
Etherums internal unit of account

40. 48
Controlling Capabilities
• Using tokens (i.e. token
standards) to clearly define users
scope of action e.g. by using the
ERC223 token standard users are
prevented to transfer their tokens
to a contract that does not allow
tokens to be withdrawn, thereby
protecting their tokens from
getting locked in.
Expanding Capabilities
• Using tokens (i.e. set of token
standards) to guarantee
interoperability and fungibility
between different types of
tokens/applications e.g. using
the ERC20 token standard
enhances a user’s ability to
interact with other tokens and
applications and hence to better
utilize the ecosystem
© 2014 | Nikolaus Lipusch
Results – Tokens as Coordination Mechanism
Token mechanisms that help to define and coordinate
behavior of different platform actors.

41. 49 © 2014 | Nikolaus Lipusch
Results – ERC20 Token Standard
The ERC 20 Token Standard contains six functions that define
a users scope of action when creating his own tokens.

42. 50
RQ2: How will these platform
boundary resources influence the
development of blockchain
platform ecosystems?

43. 51
Tokens as new kind of platform participation
structures
• The relationship between the platform owner and third-party
developers is partly reversed since developers can participate
in the platforms success through equity.
• New more symmetric partictipation structures (Nassim
Nicholas Taleb, 2017)
• Result: Users are remunerated in accordance to the actual work
they are doing or the risk they are bearing (i.e. more
meritocracy)
• Better alignment of incentives between different actors of the
ecosystem
Future Research: How can these participation
structures be used to strategically govern
platform innovation?

44. 52
Tokens as a way to leverage new kinds of network
effects
• Traditional network effects
set in as the application
value of the platform
increases.
• Token network effects
denote a new kind of
network effect that bridges
the low user participation
at the begininning of the
platform creation.
Future Research: How must tokens be designed to create these
new kind of token-network effects? How do the different kind of
network effects created through tokens interact with each other?

45. 53
Tokens as a way to create self-governing and
organic ecosystems
• Tokens introduce a new form of clan control (clan control =
shared and values and beliefs)
• Ethereum Improvement Proposals (EIPs) allow users to come
up with their own token standards. Hence they can formulate
their norms in the form of code.
• Hence, tokens allow a much more democratic process in
defining community norms thereby resulting in truly self-
governing ecosystems
• Interoperability of tokens allow more ad-hoc and organic
evolvement of new communities
Future Research: How effective are tokens as new forms of
clan control to facilitate platform control and innovation?
new rules
old rules

46. 54
Theoretical and Practical Contribution
Theoretical contribution:
Practical contribution:
• Exploring the multifacted role of token exchanges as boundary
resources
• Exploring how boundary resources associated with tokens
influence the development of blockchain platform ecosystems
• Providing a deeper understanding on how platform owners
and developers might apply token-exchanges more
deliberately for creating and scaling their ecosystem

47. 55
The Role of Tokens as Boundary
Resources to Govern Blockchain
Ecosystems
Contact:
Nikolaus Lipusch
lipusch.nikolaus@gmail.com