Why Stake When You Can Borrow?

Understand

As smart contract platforms autonomously manage billions of dollars of capital, quantifying the portfolio risk that investors engender in these systems is increasingly important.

• Recent work illustrates that Proof of Stake (PoS) is vulnerable to financial attacks arising from on-chain lending and has worse capital efficiency than Proof of Work (PoW) \cite{fanti_pos_econ}.
• Numerous methods for improving capital efficiency have been proposed that allow stakers to create fungible derivative claims on their staked assets.
• In this paper, we construct a unifying model for studying the security risks of these proposals.