Implementing the Optimal Staked Share for Proof-of-Stake Ethereum
(joint with Kohei Kawaguchi, Yang Lu, and Harlly Zhou)In Progress
Abstract: We develop a model of Proof-of-Stake (PoS) Ethereum in which ETH serves both as a liquid asset and as consensus collateral, so ledger security rises with the market value of staked ETH. This link creates a central trade-off: increasing token issuance enhances incentives to stake and thus strengthens security, but it also dilutes the liquidity value of ETH, reducing the value at stake. Under Ethereum’s current stake-dependent issuance rule, the balanced-growth path yields zero long-run ETH supply growth, rendering long-run outcomes largely insensitive to adjustments in issuance policy. Motivated by this result, we study two simple rule changes on token issuance and base-fee update that produce a unique interior balanced-growth equilibrium and establish a transparent mapping from the issuance rule to the long-run staked share and ETH price growth. We then characterize the protocol designer’s optimal staked share and the associated issuance rule and show how they vary with protocol designer's objectives and PoS transaction capacity.
Recommended citation: Dordal i Carreras, Marc, Kohei Kawaguchi, Yang Lu, and Harlly Zhou. “Implementing the Optimal Staked Share for Proof-of-Stake Ethereum” In Progress (2026).