Do cryptocurrency rewards improve platform valuations?

Abstract

This study investigates the impact of cryptocurrency rewards and token prices on user-generated content (UGC) provision by content creators on a blockchain-based platform. Analyzing data from the Steemit platform, we find that although an increase in total reward value incentivizes UGC contributions, the rise in token prices alone does not lead to a surge in UGC. Instead, token prices have a mediating role in the relationship between total rewards earned by content creators and the volume of UGC they produce. Furthermore, we observe that an increase in UGC does not lead to a corresponding rise in the platform's market capitalization, as increased website traffic intensifies competition for rewards from a constant pool, suggesting that heightened user engagement does not translate to enhanced market capitalization. These findings imply that carefully designed reward mechanisms are crucial for sustaining user engagement and content creation amidst market fluctuations. Our study underscores the importance of a comprehensive approach to incentivizing user participation and ensuring platform growth, as a mere increase in token prices may not guarantee sustained engagement or an associated increase in market capitalization.