PRELIMINARY AND INCOMPLETE Economics of Proof-of-Stake Payment Systems

In this paper we develop a valuation framework for a Proof-of-Stake (PoS) payment system. Active network participants (proposers and validators) are required to stake tokens, and receive payments in return for their services. This property of the PoS system connects cash flows to token holdings, and allows for valuation using conventional methods. As an application of our framework, we analyze security properties of the PoS system. We show that while high token valuation relative to the flow of transactions is central to network security, valuation bubbles have adverse security implications. State-contingent token supply policies can be used to alleviate this problem.