Adoption in Decentralized Networks: The Role of Volatility and Installed Base

Challenges from Choice Modeling PracticeTBA

Abstract: Decentralized physical infrastructure networks (DePINs) are two-sided platforms that allow individuals to join as nodes in global infrastructure networks (e.g., IoT devices). The incentive mechanism for joining the network rewards nodes with internal blockchain tokens, which are volatile and add uncertainty to the expected rewards. Additionally, network effects are influenced by the reward protocol of the network which prioritizes communication between nodes at specified distances.  We use a publicly available blockchain (Helium network) to construct a panel of weekly adoptions in designated areas covering 81 cities in the US and Europe. We show that token volatility has a negative effect on adoption probability that is commensurate with changes in the price of the token. Our simulations show that high uncertainty conditions can lead to cumulative lower adoption, 12% to 26% below a baseline model with average volatility. The installed base generates positive network effects at the defined witnessing distance, but has negative effects at a close distance because competitive effects dominate. We also show that the installed base mitigates the negative effects of increased volatility independently of the distance. This is consistent with the presence of social proof effects in addition to the direct network effects.

More information on Prof. Dr. Hernán Bruno can be found here.

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