Staking Pool Centralization in Proof-of-Stake Blockchain Network

32 Pages Posted: 9 Jul 2020 Last revised: 28 Nov 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

Proof-of-Stake consensus algorithm solves major drawbacks of PoW blockchain network including high energy consumption and low transaction capacity. However, PoS still faces centralization problems like PoW. In this paper, we propose an economic framework for PoS blockchain network based on staking pool optimization problem and evaluate stake concentration in the network. We prove that stake concentration is encouraged in a finite staking pool PoS blockchain network, but continued consolidation among staking pools is limited and a stable equilibrium always exists where no staking pool has incentive to deviate. Further, we prove that lower pool fixed cost and higher transaction fee raise stable equilibrium pool number and lead to higher network decentralization level. As an extension, we show that wealth discrepancy exacerbates stake centralization while tilted stakeholder selection function mitigates 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, Staking Pool Centralization in 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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