Economics of Ethereum

15 Pages Posted: 16 Apr 2024

See all articles by Kose John

Kose John

New York University (NYU) - Leonard N. Stern School of Business

Barnabé Monnot

Ethereum Foundation

Peter Mueller

Fordham University

Fahad Saleh

University of Florida

Caspar Schwarz-Schilling

Ethereum Foundation

Date Written: April 4, 2024

Abstract

We provide comprehensive background regarding the Ethereum blockchain protocol, focusing especially on the economic incentives of participants. We begin by explaining how the Ethereum protocol selects proposers to propose blocks and attesters to vote for or against blocks. We discuss both how the Proof-of-Stake protocol is used to select proposers and attesters, and also how the Gasper protocol is used to aggregate attester votes and thereby determine the finalized blockchain. We then discuss how builders, searchers and relays have arisen to support and enhance the Ethereum block production process. Finally, we clarify the transaction life-cycle from the user perspective, explaining how user transactions are submitted and settled on the blockchain. Through our discussion, we clarify the economic trade-offs faced by each participant and the associated real-world decision variables for each participant.

Keywords: Ethereum, Proof-of-Stake, Staking, Proposer-Builder Separation, Gasper, EIP-1559, Proposer, Attester, Builder, Relay, Maximal Extractable Value, MEV, Staking Pools, Liquid Staking, Liquid Staking Tokens, LSTs

JEL Classification: D40, G00, O30

Suggested Citation

John, Kose and Monnot, Barnabé and Mueller, Peter and Saleh, Fahad and Schwarz-Schilling, Caspar, Economics of Ethereum (April 4, 2024). Available at SSRN: https://ssrn.com/abstract=4783695 or http://dx.doi.org/10.2139/ssrn.4783695

Kose John

New York University (NYU) - Leonard N. Stern School of Business ( email )

Barnabé Monnot

Ethereum Foundation ( email )

HOME PAGE: http://https://rig.ethereum.org

Peter Mueller

Fordham University ( email )

33 West 60th Street
New York, NY 10023
United States

HOME PAGE: http://petercmueller.com

Fahad Saleh (Contact Author)

University of Florida ( email )

Warrington College of Business
Gainesville, FL 32611
United States

HOME PAGE: http://www.fahadsaleh.com

Caspar Schwarz-Schilling

Ethereum Foundation ( email )

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