Evolution of Shares in a Proof-of-Stake Cryptocurrency

Ioanid Roşu () and Fahad Saleh ()
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Ioanid Roşu: Finance Department, HEC Paris, 78351 Jouy-en-Josas, France
Fahad Saleh: School of Business, Wake Forest University, Winston-Salem, North Carolina 27109

Management Science, 2021, vol. 67, issue 2, 661-672

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.

Keywords: blockchain; cryptocurrency; asset allocation; martingale; P´ olya urn; Dirichlet distribution (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:2:p:661-672

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