@techreport{8354232003ef45fd93e22a4edb2b382c,
title = "Crypto exchange tokens",
abstract = "Crypto exchange tokens are an important funding source for centralized crypto exchanges, and they have been at the core of some of the biggest disruptions in the crypto industry. We develop a tractable model for the exchange rates of crypto exchange tokens that incorporates user demand, investment demand, and commonly observed pledges by exchanges to buy back tokens. We derive closed-formed solutions for the valuation of exchange tokens and the time required to fulfill the pledge. Buyback pledges increase the amount of funding raised by selling tokens. However, the additional amount raised is always less than the discounted cost of the buyback pledge. Future price manipulation by investors can further increase the cost of the buyback pledge.",
keywords = "Cryptocurrency, Funding, Bitcoin, Exchange rates",
author = "Garratt, {Rodney J.} and {van Oordt}, Maarten",
year = "2024",
language = "English",
series = "Bank for International Settlements Working Paper",
type = "WorkingPaper",
}