IT Platform Grants - Boosting User Engagement but Hindering Innovation : Evidence from Blockchain Mainnet

Abstract

This study investigates the impact of grants on user activity and project innovation within the Arbitrum mainnet network, an under-explored area in blockchain research. Using the Difference-in-Differences (DID) methodology, the study compares projects that received grants to those that did not. Results show that grants significantly boost user engagement, with grant-supported projects seeing approximately 40,280 additional transactions per week. However, grants also correlate with a decline in innovation, as evidenced by 10.22 fewer weekly updates on grant-supported projects. These findings suggest that while grants increase user activity by focusing attention on familiar and secure projects, they may inadvertently hinder innovation and reinforce oligopolistic tendencies. The study highlights the need for balanced grant policies in IT platforms to ensure both user engagement and ongoing innovation.