The Financialization of Proof-of-Stake: Asymptotic Centralization under Exogenous Risk Premiums
Why cryptocurrency staking inevitably concentrates power among the wealthy
When external financial markets offer better returns than cryptocurrency staking rewards, wealthy investors flood into staking anyway, driving yields toward zero and forcing ordinary users out of the system entirely. A mathematical model shows this centralization is not a temporary problem but an inevitable long-term outcome of how Proof-of-Stake networks interact with traditional finance.
Proof-of-Stake cryptocurrencies like Ethereum were designed to be more democratic than older mining-based systems, but this research suggests the opposite happens at scale: wealth and control concentrate in fewer hands. If true, it undermines a core promise of these networks—that ordinary people can participate meaningfully in securing and governing them.