We analyze a game-theoretic model, in which projects are financed by selling tokens that give access to consumption utility and the initial investors can sell their tokens in a secondary market. The efficiency of projects funded by token and equity financing is compared, and regulatory implications discussed. We then extent the model to consider the token issuer’s ex-post investment incentive, which creates a gap between the size of funds raised and actual capital outlays. If the investors have a naive expectation, then the issuer can sometimes sell the entire token supply and invest nothing, so the project fails. If they have a rational expectation, then the equilibrium investment level becomes more efficient, but there can be still a room for regulatory policies such as setting a floor on the issuer’s token holdings.
