Payments on Digital Platforms: Resiliency, Interoperability, and Welfare

Digital platforms, such as Alibaba and Amazon, operate an online marketplace to facilitate transactions. This paper studies a platform’s business model choice between accepting cash issuing tokens, well the implications for welfare, resiliency, interoperability. A platform free rides on existing payment infrastructure profits from collecting transaction fees. token earns seigniorage, albeit bearing costs of setting up system holding reserves mitigate cyber risk. Tokens earn consumers return, insulating transactions liquidity using cash, but also expose them remaining The issues tokens if interest rate is high, scope large, risk small. Unbacked floating with zero fees or interest-bearing stablecoins can implement equilibrium model, which not necessarily socially optimal because does internalize its impacts off-platform activities. explains why Amazon issue Alipay circulatable outside platforms. Regulations minimum reserve requirement reduce welfare