Token Incentive and Blockchain Developer Contribution

The success of a Blockchain venture critically hinges on the contribution of blockchain developers. Blockchain ventures are typically developed as open-source projects, where some developers contribute voluntarily, while others are motivated by token rewards as an incentive to participate. However, it remains unclear whether tokens can serve as a sustainable and effective incentive in the current volatile cryptocurrency market, where opportunistic activities are prevalent. To address this question, we leverage a unique setting where token incentives are substantially affected during Pump-and-dump events (PD). We examine how developers react to this impact and its potential influence on the blockchain development community. Utilizing the most granular code-development level data from GitHub, we construct two metrics to gauge developer contribution: contribution quantity and originality. We estimate the effect of token incentive on contribution through the interactive fixed effects counterfactual (IFEct) model. The results imply that developers contribute less frequently with lower code originality to the projects due to token value distortion after a PD event. Moreover, we identify the moderation effect of varying degrees of decentralization. The findings suggest that a decreased degree of decentralization can amplify the negative effect of PD, leading to the "Tragedy of the Commons", thereby further diminishing developers’ motivation to contribute. Our research provides important insights into the effectiveness of token incentives in blockchain ventures, underscoring the need for a more sustainable and effective incentive system