Can Ethereum survive a run? Hidden fragility in crypto’s Proof-of-Stake model

Gregory Phelan and Thomas Ruchti

No 2025_118, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: ""As blockchains shift from energy-hungry Proof-of-Work to capital-intensive Proof- of-Stake, they trade electricity costs for a new vulnerability: the risk of a capital run that can destabilize consensus and security. We model investors who choose between staking their coin to earn rewards or exiting to cash out, potentially triggering mass withdrawals. These “staking runs†are more likely when protocols are weak, when failure would hit coin prices hard, or when staking rewards are low. Leverage wors- ens things: margin calls accelerate exits and amplify run dynamics. Longer lock-up periods slow the run but may not prevent it. Previous research shows that low re- wards are good for protocol security. We show they also raise the risk of a run. A run on a major Proof-of-Stake chain—like Ethereum—could destabilize the entire crypto ecosystem, threatening DeFi platforms that depend on it.""

Date: 2025-09-02
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