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Evolution of Shares in a Proof-of-Stake Cryptocurrency

Author

Listed:
  • Rosu, Ioanid

    (HEC Paris)

  • Saleh, Fahad

    (University of Florida)

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, 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.

Suggested Citation

  • Rosu, Ioanid & Saleh, Fahad, 2019. "Evolution of Shares in a Proof-of-Stake Cryptocurrency," HEC Research Papers Series 1339, HEC Paris.
    • Handle: RePEc:ebg:heccah:1339
    DOI: 10.2139/ssrn.3377136
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    More about this item

    Keywords

    Blockchain; cryptocurrency; asset allocation; martingale; Polya urn; Dirichlet distribution;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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