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A Crypto Yield Model for Staking Return

Author

Listed:
  • Julien Riposo

    (Index Research & Design, EMEA, London Stock Exchange Group, London EC4M 7LS, UK)

  • Maneesh Gupta

    (Fixed Income and Multi-Asset Product Management, EMEA, London Stock Exchange Group, London EC4M 7LS, UK)

Abstract

We introduce a model that derives a metric to answer the question: what is the expected gain of a staker? We calculate the rewards as the staking return in a Proof-of-Stake (PoS) consensus context. For each period of block validation and by a forward approach, we prove that the interest is given by the ratio of the average staking gain to the total staked coins. Some additional PoS features are considered in the model, such as slash rate and Maximal Extractable Value (MEV), which marks the originality of this approach. In particular, we prove that slashing diminishes the rewards, reflecting the fact that the blockchain can consider stakers to potentially validate incorrectly. Regarding MEV, the approach we have sheds light on the relation between transaction fees and the average staking gain. We illustrate the developed model with Ethereum 2.0 and apply a similar process in a Proof-of-Work consensus context.

Suggested Citation

  • Julien Riposo & Maneesh Gupta, 2024. "A Crypto Yield Model for Staking Return," FinTech, MDPI, vol. 3(1), pages 1-19, February.
    • Handle: RePEc:gam:jfinte:v:3:y:2024:i:1:p:8-134:d:1339045
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    References listed on IDEAS

    as
    1. Bruno Bouchard & Masaaki Fukasawa & Martin Herdegen & Johannes Muhle-Karbe, 2018. "Equilibrium returns with transaction costs," Finance and Stochastics, Springer, vol. 22(3), pages 569-601, July.
    2. Conall Butler & Martin Crane, 2023. "Blockchain Transaction Fee Forecasting: A Comparison of Machine Learning Methods," Mathematics, MDPI, vol. 11(9), pages 1-26, May.
    3. Bruno Bouchard & Masaaki Fukasawa & Martin Herdegen & Johannes Muhle-Karbe, 2017. "Equilibrium Returns with Transaction Costs," Papers 1707.08464, arXiv.org, revised Apr 2018.
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