Template-Type: ReDIF-Paper 1.0
Author-Name: Rodney Garratt
Author-X-Name-First: Rodney
Author-X-Name-Last: Garratt
Author-Name: Maarten RC van Oordt
Author-X-Name-First: Maarten RC
Author-X-Name-Last: van Oordt
Title: Crypto Exchange Tokens
Abstract: Crypto exchange tokens are an important funding source for centralized crypto exchanges, and they have been at the core of some of the biggest disruptions in the crypto industry. We develop a tractable model for the exchange rates of crypto exchange tokens that incorporates user demand, investment demand, and commonly observed pledges by exchanges to buy back tokens. We derive closed-formed solutions for the valuation of exchange tokens and the time required to fulfill the pledge. Buyback pledges increase the amount of funding raised by selling tokens. However, the additional amount raised is always less than the discounted cost of the buyback pledge. Future price manipulation by investors can further increase the cost of the buyback pledge. 
Creation-Date: 2024-07
File-URL: https://www.bis.org/publ/work1201.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1201.htm
File-Format: text/html
Number: 1201
Keywords: asset pricing, cryptocurrencies, exchanges, market manipulation
Classification-JEL: G10, G12, G18
Handle: RePEc:bis:biswps:1201