#41: Empirical Economics

Economic review of Eth2, empirical data on Tezos staking, Avalanche and SKALE sale, state of Cosmos interoperability, and more.

This newsletter is supported by Chorus One, a provider of staking services in decentralized networks.

Eth2 Economic Review

paper reviewing the incentive model of Ethereum’s Proof-of-Stake design. The authors set up a framework to evaluate economic security in Eth2 and model the impact on yields in various scenarios. The main results are a bunch of interesting conclusions and recommendations (at the beginning of the paper):

  • At 13.8% of ETH staked, security levels of Eth2 will match those of Eth1 PoW given historical prices.

  • 77.7% of the total ETH supply is held in non-exchange wallets with over 32 ETH.

  • Network inflation will likely be significantly lower with PoS compared to PoW.

  • Lack of liquidity in phase 0 and 1 might cause unpredictability and centralization caused by exchanges and other secondary market derivative activity.

Tezos Staking Study

An interesting data-driven study by Blockwatch Data on the state of staking on Tezos. Lots of interesting tidbits on how XTZ holders have participated in the protocol since it launched 2 years ago:

  • When published, there were 440 active validators and 56k delegators on the network.

  • Of the total supply, Tezos validators stake 16.2% themselves, 63.8% of XTZ are delegated, 5.9% of all XTZ were never claimed, 1% delegate to inactive bakers, and 20% are not staking at all.

  • Delegators are loyal! There is a relatively low churn rate of 2–10%, suggesting delegators stay with their validators 10–50 months on average.

Network Updates

  • Avalanche SaleThe AVAX token sale concluded successfully raising $42m within 4.5 hours for 10% of the token supply (50% are reserved for inflationary staking rewards).

  • Cosmos IBC is Coming: The first Stargate proposal that will ultimately bring Inter-Blockchain Communication functionality is being voted on by Cosmos governance. In the meantime, lead IBC architect Chris Goes wrote a post highlighting the work that is done by various organizations, and a stable new version of the Cosmos SDK (Launchpad) has been released.

  • Eth2 Attacknets: The Medalla community multi-client testnet for Ethereum 2.0 phase 0 will launch Aug 4 with support by at least 4 clients. In addition, the Ethereum Foundation has issued bug bounties for white hat hackers that manage to bring down testnet versions of different clients. Check out the details here.

  • SKALE Token Sale and Economics: SKALE, Ethereum layer-2 scaling solution with a unique adaptive sidechain design, will hold a public sale through ConsenSys’ new Activate platform starting Aug 17 after launching its restricted mainnet earlier this month. 125m SKL tokens will be sold through a dutch auction and remain locked until they have been staked for a minimum of 90 days (proof of use). Furthermore, SKALE’s Conner Murphy published a comprehensive blog post about the tokenomics of the network covering details on SKL staking and how SKALE sidechain pricing will adapt to utilization levels.

  • Polkadot Goes Permissionless: Polkadot is now fully controlled by stakeholders after the “Sudo” module, which granted special privileges to the Web3 Foundation, was removed via governance.

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Staking Economy is written by Felix Lutsch from Chorus One with assistance from Chris Remus, operator of the Chainflow validators. Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.