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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
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    References listed on IDEAS

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    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.
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    Cited by:

    1. 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).
    2. Wenpin Tang, 2022. "Stability of shares in the Proof of Stake Protocol -- Concentration and Phase Transitions," Papers 2206.02227, arXiv.org.
    3. 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.
    4. Wenpin Tang & David D. Yao, 2023. "Transaction fee mechanism for Proof-of-Stake protocol," Papers 2308.13881, arXiv.org, revised Aug 2023.
    5. Wenpin Tang, 2023. "Trading and wealth evolution in the Proof of Stake protocol," Papers 2308.01803, arXiv.org, revised Aug 2023.
    6. Irresberger, Felix & Yang, Ruomei, 2023. "Coin concentration of Proof-of-Stake blockchains," Economics Letters, Elsevier, vol. 229(C).
    7. Alon Benhaim & Brett Hemenway Falk & Gerry Tsoukalas, 2021. "Scaling Blockchains: Can Committee-Based Consensus Help?," Papers 2110.08673, arXiv.org, revised Dec 2022.
    8. Nicola Dimitri, 2022. "The Economics of Consensus in Algorand," FinTech, MDPI, vol. 1(2), pages 1-16, May.
    9. Agostino Capponi & Ruizhe Jia & Ye Wang, 2022. "The Evolution of Blockchain: from Lit to Dark," Papers 2202.05779, arXiv.org.

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