IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v67y2021i2p661-672.html
   My bibliography  Save this article

Evolution of Shares in a Proof-of-Stake Cryptocurrency

Author

Listed:
  • Ioanid Roşu

    (Finance Department, HEC Paris, 78351 Jouy-en-Josas, France)

  • Fahad Saleh

    (School of Business, Wake Forest University, Winston-Salem, North Carolina 27109)

Abstract

Do the rich always get richer by investing in a cryptocurrency for which new coins are issued according to a proof-of-stake (PoS) protocol? We answer this question in the negative: Without trading, the investor shares in the cryptocurrency are martingales that converge to a well-defined limiting distribution and, hence, are stable in the long run. This result is robust to allowing trading when investors are risk neutral. Then, investors have no incentive to accumulate coins and gamble on the PoS protocol but weakly prefer not to trade. This paper was accepted by Kay Giesecke, finance.

Suggested Citation

  • Ioanid Roşu & Fahad Saleh, 2021. "Evolution of Shares in a Proof-of-Stake Cryptocurrency," Management Science, INFORMS, vol. 67(2), pages 661-672, February.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:2:p:661-672
    DOI: 10.1287/mnsc.2020.3791
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/mnsc.2020.3791
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2020.3791?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Bruno Biais & Christophe Bisière & Matthieu Bouvard & Catherine Casamatta, 2019. "The Blockchain Folk Theorem," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1662-1715.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lin William Cong & Ke Tang & Yanxin Wang & Xi Zhao, 2023. "Inclusion and Democratization Through Web3 and DeFi? Initial Evidence from the Ethereum Ecosystem," NBER Working Papers 30949, National Bureau of Economic Research, Inc.
    2. Ferreira, Daniel & Li, Jin & Nikolowa, Radoslawa, 2023. "Corporate capture of blockchain governance," LSE Research Online Documents on Economics 115618, London School of Economics and Political Science, LSE Library.
    3. Patel, Ritesh & Migliavacca, Milena & Oriani, Marco E., 2022. "Blockchain in banking and finance: A bibliometric review," Research in International Business and Finance, Elsevier, vol. 62(C).
    4. Wenpin Tang, 2022. "Stability of shares in the Proof of Stake Protocol -- Concentration and Phase Transitions," Papers 2206.02227, arXiv.org.
    5. Wenpin Tang & David D. Yao, 2022. "Trading under the Proof-of-Stake Protocol -- a Continuous-Time Control Approach," Papers 2207.12581, arXiv.org, revised Jun 2023.
    6. Wenpin Tang & David D. Yao, 2023. "Transaction fee mechanism for Proof-of-Stake protocol," Papers 2308.13881, arXiv.org, revised Aug 2023.
    7. Wenpin Tang, 2023. "Trading and wealth evolution in the Proof of Stake protocol," Papers 2308.01803, arXiv.org, revised Aug 2023.
    8. Irresberger, Felix & Yang, Ruomei, 2023. "Coin concentration of Proof-of-Stake blockchains," Economics Letters, Elsevier, vol. 229(C).
    9. Alon Benhaim & Brett Hemenway Falk & Gerry Tsoukalas, 2021. "Scaling Blockchains: Can Committee-Based Consensus Help?," Papers 2110.08673, arXiv.org, revised Dec 2022.
    10. Nicola Dimitri, 2022. "The Economics of Consensus in Algorand," FinTech, MDPI, vol. 1(2), pages 1-16, May.
    11. Agostino Capponi & Ruizhe Jia & Ye Wang, 2022. "The Evolution of Blockchain: from Lit to Dark," Papers 2202.05779, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bruno, August & Weber, Paige & Yates, Andrew J., 2023. "Can Bitcoin mining increase renewable electricity capacity?," Resource and Energy Economics, Elsevier, vol. 74(C).
    2. Hanna Halaburda & Guillaume Haeringer & Joshua Gans & Neil Gandal, 2022. "The Microeconomics of Cryptocurrencies," Journal of Economic Literature, American Economic Association, vol. 60(3), pages 971-1013, September.
    3. Simplice A. Asongu & Nicholas M. Odhiambo, 2023. "Female unemployment, mobile money innovations and doing business by females," Journal of Innovation and Entrepreneurship, Springer, vol. 12(1), pages 1-26, December.
    4. Lin William Cong & Zhiguo He & Jiasun Li & Wei Jiang, 2021. "Decentralized Mining in Centralized Pools [Concentrating on the fall of the labor share]," The Review of Financial Studies, Society for Financial Studies, vol. 34(3), pages 1191-1235.
    5. Jacob D. Leshno & Elaine Shi & Rafael Pass, 2024. "On the Viability of Open-Source Financial Rails: Economic Security of Permissionless Consensus," Papers 2409.08951, arXiv.org.
    6. Agur, Itai & Ari, Anil & Dell’Ariccia, Giovanni, 2022. "Designing central bank digital currencies," Journal of Monetary Economics, Elsevier, vol. 125(C), pages 62-79.
    7. Soria, Jorge & Moya, Jorge & Mohazab, Amin, 2023. "Optimal mining in proof-of-work blockchain protocols," Finance Research Letters, Elsevier, vol. 53(C).
    8. Jiang, Rong & Kang, Yuanjie & Liu, Yongsong & Liang, Zhihong & Duan, Yunlong & Sun, Yani & Liu, Jialan, 2022. "A trust transitivity model of small and medium-sized manufacturing enterprises under blockchain-based supply chain finance," International Journal of Production Economics, Elsevier, vol. 247(C).
    9. Hautsch, Nikolaus & Scheuch, Christoph & Voigt, Stefan, 2018. "Limits to arbitrage in markets with stochastic settlement latency," CFS Working Paper Series 616, Center for Financial Studies (CFS).
    10. Lin William Cong & Ye Li & Neng Wang, 2021. "Tokenomics: Dynamic Adoption and Valuation [The demand of liquid assets with uncertain lumpy expenditures]," The Review of Financial Studies, Society for Financial Studies, vol. 34(3), pages 1105-1155.
    11. Jean-Guillaume Dumas & Sonia Jimenez-Garcès & Florentina Șoiman, 2021. "Blockchain technology and crypto-assets market analysis: vulnerabilities and risk assessment," Working Papers hal-03112920, HAL.
    12. Dorfleitner, Gregor & Muck, Franziska & Scheckenbach, Isabel, 2021. "Blockchain applications for climate protection: A global empirical investigation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 149(C).
    13. Yukun Liu & Aleh Tsyvinski, 2018. "Risks and Returns of Cryptocurrency," NBER Working Papers 24877, National Bureau of Economic Research, Inc.
    14. Can, Burak & Leth Hougaard, Jens & Pourpouneh, Mohsen, 2022. "On reward sharing in blockchain mining pools," Games and Economic Behavior, Elsevier, vol. 136(C), pages 274-298.
    15. Brunnermeier, Markus & Abadi, Joseph, 2018. "Blockchain Economics," CEPR Discussion Papers 13420, C.E.P.R. Discussion Papers.
    16. Benigno, Pierpaolo & Schilling, Linda M. & Uhlig, Harald, 2022. "Cryptocurrencies, currency competition, and the impossible trinity," Journal of International Economics, Elsevier, vol. 136(C).
    17. Jonathan Chiu & Thorsten V Koeppl, 2019. "Blockchain-Based Settlement for Asset Trading," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1716-1753.
    18. Joshua S. Gans & Hanna Halaburda, 2023. ""Zero Cost'' Majority Attacks on Permissionless Blockchains," NBER Working Papers 31473, National Bureau of Economic Research, Inc.
    19. Saketh Aleti & Bruce Mizrach, 2021. "Bitcoin spot and futures market microstructure," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(2), pages 194-225, February.
    20. Cong, Lin William & Li, Ye & Wang, Neng, 2022. "Token-based platform finance," Journal of Financial Economics, Elsevier, vol. 144(3), pages 972-991.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:67:y:2021:i:2:p:661-672. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.