How Do You Value a Thing With No Cash Flows? Cong, Li and Wang on Tokenomics

Ask a finance professor what a share of stock is worth and they will tell you: the present value of the cash flows it will pay you. Dividends, discounted. It has been the foundation of valuation for ninety years.

Now ask them what a token is worth.

A token pays no dividend. It has no earnings. It gives you no claim on anyone's assets, no vote, no legal right to any future payment. Discounted cash flow does not just give the wrong answer, it has nothing to work with at all. Which is one reason token valuation in practice degenerated into either "it goes up because people buy it" or elaborate arithmetic dressed up to look like analysis.

Lin William Cong, Ye Li and Neng Wang built the first serious model of what determines a token's price, and the answer turns out to be genuinely different from anything in classical asset pricing.

The problem: an asset with no cash flows

Consider a token that does something real: it is the required means of payment on a platform. Maybe it is used to buy storage on a decentralised storage network, or compute on a decentralised computing platform, or to pay transaction fees. If you want to transact on that platform, you need the token.

That token has a use. But it does not pay you anything for holding it. So what determines its price?

The pre-existing answer from monetary economics is the quantity theory of money, and people did try to apply it: token price times token supply, divided by velocity, equals the value of transactions on the platform. That gives you a number, and it has the shape of an answer, but it is a static accounting identity. It says nothing about why people adopt the platform, how adoption grows, whether holding the token is a good investment, or why token prices are so volatile. It is an equation with no economics in it.

The key idea via analogy: the ticket that gets more valuable as the concert fills

Here is the mental picture.

Imagine a market where the only accepted currency is a special token. To buy or sell anything in that market, you must hold tokens. The token is not an investment in the market operator, it is a ticket of admission to transacting.

Now, how much is a ticket worth? It depends on how much trade you want to do in that market. Which depends on how many other people are in the market, because a market with nobody in it is useless. The value of participating rises with the number of participants. That is a network effect, and it is the engine of the whole model.

Cong, Li and Wang formalise this. Users differ in how much they benefit from the platform. Each user decides whether to join, based on the benefit of transacting there, which depends on how many other users have joined. Users who join must hold tokens to transact. That demand for tokens, aggregated across all users, is what sets the token price. The price is not discounted cash flow. It is aggregated transactional demand.

And then comes the piece that turns a static story into a dynamic one, and it is the paper's most interesting move.

Because the platform is growing, the token you need for transacting today will probably be worth more tomorrow. So when you buy a token to use the platform, you are not just buying a ticket. You are buying an asset with expected appreciation. The user gets to capitalise on the platform's future growth simply by holding the thing they needed anyway.

That has a striking consequence. The expected appreciation acts like a rebate on the cost of using the platform. If holding the token is expected to earn you something, then the effective cost of transacting is lower than it looks. Lower cost means more people join. More people joining means more growth. More growth means more expected appreciation, which lowers the cost further.

The token, in other words, is not just a way to pay. It is a mechanism that accelerates its own adoption by letting users share in the upside. That is a real economic function, and it is a genuinely novel one. It is the closest thing to a rigorous answer to the question "why issue a token at all instead of just charging in dollars."

The dynamics that come out of the model are equally interesting. Adoption follows an S-curve: slow at first, when few users make the platform unattractive to join, then explosively fast once the network effect takes hold and the feedback loop kicks in, then flattening as the remaining potential users are the ones who benefit least. And in the steep middle section of the curve, the token price is extremely volatile, because small changes in expected adoption get amplified by the feedback loop into large changes in price.

That last point is worth pausing on, because it means the wild volatility of token prices is not necessarily evidence of irrationality. In a market with strong network effects and self-reinforcing adoption, high volatility is what a rational model predicts.

Why it mattered

• It gave token valuation an actual foundation. Before this, there were spreadsheets and vibes. This paper provides a coherent economic model in which a token's price emerges from something real: the demand to use a platform.
• It explained why tokens exist. The most common criticism of tokens, that they are a pointless layer on top of a service that could just charge money, has an answer here. Tokens let early users capture platform growth, which lowers their effective cost of joining, which speeds up adoption. That is a genuine function, not a marketing gimmick.
• It made volatility a prediction rather than an embarrassment. The model derives extreme price volatility during the growth phase from rational behaviour and network effects. That is a much more useful framing than declaring the whole thing a mania.
• It connected crypto to network economics. Tokens are best understood not through the lens of stocks or currencies but through the lens of platforms, network effects and adoption dynamics, the same intellectual toolkit that explains why a social network is worth something. That reframing has been influential.
• It has design implications. If the token's job is to accelerate adoption by sharing growth with users, then how you issue it, how much you keep, and how you distribute it are not fundraising details. They are the core mechanism, and getting them wrong breaks the flywheel.

The honest limitations

• It assumes the platform is actually useful. The entire model is built on users deriving genuine benefit from transacting on the platform. If nobody wants the underlying service, transactional demand is zero and the token is worth zero, which is precisely the situation for the overwhelming majority of tokens ever issued. The model is a valuation framework for tokens with real use, and it correctly implies that a token without use has no value.
• It does not model speculation. Real token markets are dominated by people who have never used the platform and never will. They are buying because they think the price will rise. The model has users who happen to also benefit from appreciation. It does not have pure speculators, and in practice those are most of the market.
• Adoption is voluntary and frictionless in the model. No competing platforms, no switching costs, no forks, no governance disputes, no rug-pulls, no regulatory shutdown. Reality has all of these.
• The S-curve is a prediction, not a track record. Very few token platforms have completed a full adoption curve. The theory is elegant. The empirical evidence for it is thin, because most tokens die in the flat part at the beginning.
• It cannot tell you which platform wins. Network effects mean winner-take-all dynamics, and the model does not help you pick the winner. Being right about the theory and wrong about the platform still loses all your money.

The one-line takeaway

Cong, Li and Wang showed that a token's value comes not from discounted cash flows but from the aggregated demand of people who need it to transact, and that because holding the token lets users capture the platform's growth, the token actively accelerates its own adoption, producing an S-curve of growth and a rationally explosive price along the way.