Jour Fixe - Overcoming the Coordination Problem by Competitive Poaching in the Token Economy – Cold-Starting Two-Sided Platforms by Token Airdrops

Overcoming the Coordination Problem by Competitive Poaching in the Token Economy – Cold-Starting Two-Sided Platforms by Token Airdrops

New platforms often struggle to compete with incumbents in two-sided markets due to the coordination problem. Entrants find it challenging to attract new users on both sides of the market, as they lack an initial user base. In this study, we investigate the effectiveness of a novel strategy for overcoming the coordination problem by airdropping cryptographic tokens to poach customers from a monopolistic incumbent. Using publicly available on-chain data, we compare the homing choices and the adoption exclusivity of poached and non-poached users during the launch of the new marketplace to provide empirical evidence of the poaching effectiveness. Our findings suggest that poaching can help address the coordination problem by creating initial sell offers and enabling subsequent trading activity. However, the effect diminishes quickly, and it is not strong enough to dethrone the incumbent. Nevertheless, it allowed the entrant to gain market share without substantial prior funding, which makes it an appealing strategy for startups with limited resources.