Stake Centralization in Decentralized Proof-of-Stake Blockchain Network

32 Pages Posted: 9 Jul 2020

See all articles by Ping He

Ping He

Tsinghua University, SEM

Dunzhe Tang

Tsinghua University, SEM

Jingwen Wang

Tsinghua University, SEM

Date Written: May 25, 2020

Abstract

Decentralization is key to the security of Proof-of-Stake blockchain network. In this paper, we propose an economic framework for PoS blockchain network and evaluate stake concentration cause by PoS consensus algorithm. Specifically, we model blockchain participants' decision-making in allocating wealth between saving and stake to maximize total return. We prove that in a fully decentralized model, stake return rate equals risk-free interest rate and thus wealth discrepancy among participants is irrelevant to stake distribution in the network. However, in a more realistic setting where the number of participants in the network is limited due to the rise of staking pools for risk-sharing purpose, stake concentration might naturally happen due to decreasing return rate to participant number. As a mechanism design suggestion, we prove that lower participant cost and stakeholder selection function tilted towards smaller participants can reduce stake centralization.

Keywords: Blockchain, Proof-of-Stake, POS, Cryptocurrency, delegated-Proof-of-Stake, Stake Concentration

JEL Classification: G10, D46, E42, L86

Suggested Citation

He, Ping and Tang, Dunzhe and Wang, Jingwen, Stake Centralization in Decentralized Proof-of-Stake Blockchain Network (May 25, 2020). Available at SSRN: https://ssrn.com/abstract=3609817 or http://dx.doi.org/10.2139/ssrn.3609817

Ping He

Tsinghua University, SEM ( email )

Beijing, 100084
China
8610-62795754 (Phone)
8610-62784554 (Fax)

HOME PAGE: http://www.sem.tsinghua.edu.cn/en/heping

Dunzhe Tang (Contact Author)

Tsinghua University, SEM ( email )

Beijing, 100084
China

Jingwen Wang

Tsinghua University, SEM ( email )

Beijing, Beijing 100084
China

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