Stake Centralization in Decentralized Proof-of-Stake Blockchain Network
32 Pages Posted: 9 Jul 2020
Date Written: May 25, 2020
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: Suggested Citation