Payments on Digital Platforms: Resiliency, Interoperability and Welfare
Digital platforms, such as Alibaba and Amazon, operate an online marketplace to facilitate transactions. How do these platforms make their business model choice between accepting cash and issuing tokens? What are the effects of these choices on the economy?
This paper develops a general equilibrium model to study the design choices of digital platforms and the implications for welfare, resiliency, and interoperability.
We find that a platform issues tokens if the interest rate is high, the platform scope is large, and the cyber risk is small. The equilibrium business model is not necessarily socially optimal because the platform does not take into consideration its impacts on activities beyond the platform itself. Regulations such as a minimum reserve requirement can reduce welfare.