Financial incentives for the development of blockchain-based platforms

I consider a developer creating a new blockchain-based decentralized digital platform. Users can perform exchanges on the decentralized digital platform only by using a specific crypto-token. The entire stock of this token is initially owned by the developer, who can sell some in an Initial Coin Offering (ICO) to raise funds. Novel with respect to the literature, the developer can also sell tokens later on a frictionless financial market. I show that, if the developer raises funds in an ICO, in each post-ICO period there is a positive probability that the developer sells all of his tokens on the market and, as a consequence, no development occurs. If the developer does not need to raise funds via an ICO, the equilibrium will nonetheless be inefficient because the developer’s payoff depends on the surplus generated by the decentralized digital platform in a given period (when he expects to sell his tokens). He therefore fails to internalize that the decentralized digital platform will be used (and generate surplus) over multiple periods.