Trading Incentives and Wealth Dynamics in Proof of Stake

Summary

This chapter surveys how wealth and trading behavior evolve in cryptocurrency systems that issue new coins through Proof of Stake. It first considers wealth accumulation without trading, with attention to how the protocol may affect decentralization. It then examines an individual miner’s incentive to trade while balancing that activity against participation in staking and coin issuance.

For individual decisions, the chapter uses an optimal-control perspective. It also considers interactions among miners through a mean-field model of a Proof of Stake trading environment, drawing on stochastic and analytical methods. The chapter outlines open problems as well. The provided description is a survey overview rather than a report of a particular trading rule or empirical test: it gives no datasets, quantitative findings, or detailed assumptions. Its value for traders is mainly conceptual, in framing the links between protocol design, concentration of wealth, and strategic trading incentives.

Key ideas

• The chapter studies wealth evolution under Proof of Stake, including the case without trading.
• Decentralization is considered as an outcome of the protocol’s wealth dynamics.
• An optimal-control lens frames a miner’s tradeoff between trading and staking activity.
• A mean-field model is used to study collective miner behavior.
• The overview lists open problems but supplies no empirical performance evidence.

Tags

# Trading and wealth evolution in the Proof of Stake protocol


# Trading and wealth evolution in the Proof of Stake protocol









With the increasing adoption of the Proof of Stake (PoS) blockchain, it is timely to study the economy created by such blockchain. In this chapter, we will survey recent progress on the trading and wealth evolution in a cryptocurrency where the new coins are issued according to the PoS protocol. We first consider the wealth evolution in the PoS protocol assuming no trading, and focus on the problem of decentralisation. Next we consider each miner's trading incentive and strategy through the lens of optimal control, where the miner needs to trade off PoS mining and trading. Finally, we study the collective behavior of the miners in a PoS trading environment by a mean field model. We use both stochastic and analytic tools in our study. A list of open problems are also presented.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.