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14.129 | Spring 2025 | Graduate

# Blockchain and the Design of Financial Systems

### Course Meeting Times

Lecture: 2 sessions/week; 1.5 hours/session

Recitations: 1 session/week; 1.5 hours/session

### Prerequisites

14.121 Microeconomic Theory I, 14.281 Contract Economics, or permission of the instructor

### Course Description

This course will synthesize the computer science technologies underlying cryptocurrency, blockchain, tokenization, platforms, and computational algorithms with the economics tools of contract theory, mechanism design, general equilibrium theory, and monetary theory. The goal is to understand the assumptions, existing shortcomings, and potential impact on legacy systems of distributed ledgers, smart contracts, and encryption and to explore possibilities for new financial designs and for regulation. Each lecture, or cluster of adjacent lectures, features one or several of the computer science technologies in the context of historical and contemporary economic applications, using the various economic tools. Examples of practical applications or case studies to be explored include community currencies, coordination and financial crashes, tokenized assets and trade fails, multilateral payment and trade credit setoffs, liquidity injections and financial contagion, risk sharing, auctions, and online markets.

Emphasis is given to unpacking the different computer science technologies and assumptions, sometimes rearranging them, rather than accepting conventional bundles and labels. For example, one can combine the authentication and commitment schemes of encryption with an automated execution engine on a distributed ledger but also do so with computer code without a consensus algorithm, or even with trusted third parties operating escrow accounts. Related, different technologies allow different implementations of the “central planner” construct of economics and gradually abstract this centralized role away in concretely deployed mechanism designs and commercial applications. The goal is a balanced perspective, avoiding hype and ideological positions, focusing instead on ways to implement use cases in various economic contexts, allowing policy designers to leverage technological tools for the different problems they are facing.

### Optional Minor

As an option, this course 14.129 can be taken as part of an econ minor (though of course this is not required). Two half-semester classes will be offered this spring, 14.129 and 14.193 (the second half of 14.772, so half-semester credit)

14.193 features digital innovations in developing and other countries using theory-based empirical work to explore risk sharing, obstacles to trade, IO and imperfect competition, and the economy-wide impact of innovations using micro-founded macro models. Prototypes and actual innovations underway include digital payments, digital risk sharing, and domestic and cross-border exchange and contracting platforms. Each half can be taken individually, and all students are welcome regardless of field.

### Course Requirements

This is a research-oriented course. Students are expected to attend lectures and TA sessions. There is no final exam. Rather, students are expected to engage in research, choosing several topics, exploring further the themes of the lectures. The basics would be written commentary on several of the papers on the reading list, as short referee reports (critical reviews), but at least one topic should be explored in more depth as the beginnings of your own research. The last classes are reserved for student presentations and discussion. Time limitations will likely not allow all submitted material to be presented. (Examples of research topics options from last year will be posted.)

## Course Info

### Instructor

- Prof. Robert M. Townsend

### Departments

- Economics

### As Taught In

Spring 2025

### Level

Graduate

### Topics

- Social Science
  - Economics
    - Financial Economics

### Learning Resource Types

notes Lecture Notes
theaters Lecture Videos

Browse Resources

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