Blockchain Tokens, Price Volatility, and Active User Base: An Empirical Analysis Based on Tokenomics

Blockchain tokens have gained substantial market capitalization, but skepticism persists due to their price volatility and association with speculative practices. However, this volatility can also be seen as an opportunity, allowing for appreciation windows that encourage users to hold their tokens. In this paper, we use a sample of 58 digital assets to conduct an empirical analysis divided into two steps. Firstly, due to the wide-ranging features across tokens, we use a novel blockchain-based token classification framework to investigate the drivers of user bases activity and tokens price volatility to examine any underlying tokenomics links between the two variables. Our results suggest that specific features, such as tokens earning potential and voting rights, foster token-holding strategies leading to a decrease in network activity. Rather, only belonging to the Ethereum ecosystem has a positive effect on price volatility. Subsequently, we analyze the relationship between price volatility and active user base. The findings demonstrate that, on average, a 10% increase in volatility causes a decrease between 2.51% and 4.92% in user bases activity, thereby corroborating the hypothesis that tokens price volatility can be perceived as an opportunity, promoting token retention.