Theoretical Essays in Blockchain Economics and Asset Pricing

Ville Savolainen

Forskningsoutput: AvhandlingDoktorsavhandlingSamling av artiklar


This dissertation is a collection of three essays. The first two essays apply game theory, industrial organization economics, and monetary economics to improve our understanding about blockchain based cryptocurrencies, with a specific focus on blockchain security. The main contributions of these two essays are the following: Centralized mining in pools is not harmful for security of Proof-of-Work cryptocurrencies. In Proof-of-Stake cryptocurrencies a high monetary base expansion rate is necessary for security. The third essay is in the field of macro-finance and theoretically proposes that the counter cyclical variation in expected excess returns and volatility can be explained in a neoclassical framework where firms through innovation gain monopoly power and have fixed costs in production.
In the first essay we examine pools’ cost of double spending and conclude that the costs are increasing in pool size. This result should help to alleviate the fear of centralization which has been raised in academia and the industry. Our results rely on the fact that because pools’ returns are dependent on the value of the cryptocurrency they would not attack against the cryptocurrency. We come to this conclusion through a game theoretical model where pools collect fees and make economic profits.
The second essay, studies under which circumstances the stake holders would follow the longest chain rule instead of attacking in a Proof-of-Stake protocol. The essay discusses monetary base expansion rate in cryptocurrencies and its effects on agents stacking behavior, and cryptocurrencies’ security and market capitalization. The essay has versatile results. The most important is probably
that monetary base expansion increases market capitalization and security. The model proposes that annual inflation rate should be 36-1000 % for a Proof-of-Stake cryptocurrency to be safe against double spending attacks.
The third essay employs a simplification of the seminal product variety model of Romer (1990). In the model each intermediate goods producer is a monopolist maximizing his profits. These producers collect a constant mark-up over variable costs for producing their intermediary good. In addition to variable costs, each production line has a fixed cost. What is left from the revenues after fixed and variable costs is the profit of the intermediate goods producer. The lower the demand, the lower the profits per unit of intermediate good. Hence, dividend stream, and equity price are more sensitive to shocks during the recession than during booms. The essay illustrates to what extent the proposed model can explain asset pricing fluctuations. The intended contribution of the essay is to demonstrate that deviating from the neoclassical assumptions of perfect competition and decreasing scale returns may explain countercyclical volatility and expected excess returns.
KvalifikationDoktor i filosofi
  • Colak, Gonul, Handledare
  • Korkeamaki, Timo, Handledare, Extern person
Tryckta ISBN978-952-232-464-1
Elektroniska ISBN978-952-232-465-8
StatusPublicerad - 2022
MoE-publikationstypG5 Doktorsavhandling (artikel)


  • 512 Företagsekonomi


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