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Eric Conner @econoar
, 15 tweets, 3 min read Read on Twitter
0/ I see a lot of discussion about the technicals of Ethereum’s Casper PoS but not much discussion around the economics. I’ve been giving a lot of thought to the current incentive structure and here are my thoughts. SPOILER: I think we need more discussion around the economics.
1/ First, a quick reminder that PoS will allow users to “lock up” their Ether (32 of them) in order to secure the network. In doing this, you run a “validator” which votes on blocks. You are rewarded for this effort by paid interest on your total stake in ETH.
2/ The current spec lays out an incentive structure for stakers that is based on total Ether staked on the network. The less Eth staked, the higher the interest paid to stakers. This is to incentivize more stake if it’s too low.
3/ Many people run Ethereum nodes at a loss currently (13,200 at this time) in order to help secure the network so I would expect nearly anyone doing this to run a single 32 Eth validator. Beyond this it gets trickier...
4/ An important thing to know is that every validator (32 Eth) requires some type of computing cost (C) to operate. So as you scale to more validators, computing and maintenance costs rise as well. Will “mass validator” investment be a thing?
5/ At this point, for a larger holder, you have to consider many costs and risks (just like any investment). Capital, hardware, slashing (maintenance) and liquidity risks are all in play. Now you must determine what return is worth it to proceed.
6/ The 3 month US T-bill is usually considered a risk free rate to investors. It’s currently 2.2% and rising. The 30 year is 3.5%. An investor with excess capital looking for investment options will not go below this range of rates and will require a spread on top for risks.
7/ For current Eth holders there are many other factors such as taxes on cash out if you seek other investment options but as Ethereum open finance options come online, the competition for interest paid will be strong. Staking will have to compete with this.
8/ Given the above, my assumption (and using some general polling I’ve done) is that ~5% interest is the minimum interest required for most to consider mass staking. Currently, this would mean ~5mn total ETH staked (156k nodes). I don't see it going too far beyond.
9/ From my current understanding of the spec, each shard will require a min committee size of 128. This would mean for the network to hit 1024 shards, it would need 131k validators at a minimum. 156k nodes would be just over this.
10/ I’m not writing this to cause any concern, as the spec is still a work in progress. However, I think there should be more discussion around the economics of PoS. Should we consider slightly higher inflation in order to guarantee a higher validator count?
11/ Current sliding scale incentive structure between total network stake and interest paid.
12/ Link to the /r/ethtrader poll I ran on the subject:…
A lot of people are choosing to focus solely on my t-bill comparison. That’s missing the point it was just one example of an alternative

Also saying “Eth is speculative already so it doesn’t matter” is short sided. Over time volatility will shrink and Eth will be stable as money
These decisions have long lasting impacts. It’s very important to think well beyond today and consider many different environments.
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