Equilibrium Staking Levels in a Proof-of-Stake Blockchain

34 Pages Posted: 18 Nov 2021 Last revised: 19 Nov 2021

See all articles by Kose John

Kose John

New York University (NYU) - Department of Finance

Thomas J Rivera

McGill University

Fahad Saleh

Wake Forest University - Schools of Business

Date Written: November 17, 2021

Abstract

We study the equilibrium level of staking in a Proof-of-Stake blockchain when investors have different trading horizons. We find that, contrary to conventional wisdom, staking levels do not always increase in block rewards. Rather, block rewards serve as an inflationary transfer from short-horizon cryptocurrency investors to long-horizon cryptocurrency investors. Thus, increasing block rewards reduces short-horizon cryptocurrency investment which, under certain conditions, reduces the overall transfer to long-horizon cryptocurrency investors and therefore reduces long-horizon investment as well. When this is the case, increasing block rewards decreases total cryptocurrency investment which leads to a reduction in the equilibrium value of staked cryptocurrency.

Keywords: Blockchain, Proof-of-Stake, Staking, Block Rewards

JEL Classification: G00, O30

Suggested Citation

John, Kose and Rivera, Thomas and Saleh, Fahad, Equilibrium Staking Levels in a Proof-of-Stake Blockchain (November 17, 2021). Available at SSRN: https://ssrn.com/abstract=3965599 or http://dx.doi.org/10.2139/ssrn.3965599

Kose John

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

Thomas Rivera

McGill University ( email )

1001 Sherbrooke St W
Montreal, Quebec h3A 1G5

Fahad Saleh (Contact Author)

Wake Forest University - Schools of Business

P.O. Box 7659
Winston-Salem, NC 27109-7285
United States

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