Competitive equilibria between staking and on-chain lending

Understand

Proof of Stake (PoS) is a burgeoning Sybil resistance mechanism that aims to have a digital asset ("token") serve as security collateral in crypto networks.

• However, PoS has so far eluded a comprehensive threat model that encompasses both Byzantine attacks from distributed systems and financial attacks that arise from the dual usage of the token as a means of payment and a Sybil resistance mechanism.
• In particular, the existence of derivatives markets makes malicious coordination among validators easier to execute than in Proof of Work systems.
• We demonstrate that it is also possible for on-chain lending smart contracts to cannibalize network security in PoS systems.