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Efficiency of Proof-of-Stake

Brian Crain
Brian Crain
1 min read

One aspect of Proof-of-Stake (PoS) that is not often discussed is how it helps preserve the ownership of token holders.

Let's look at a hypothetical PoS chain:

  • Market cap: $1bn
  • Annual inflation: $100m
  • Average validator commission rate: 15%

In this example, while $100m of new tokens are created each year, they mostly just go to existing token holders. Only $15m are paid to the validators (e.g. companies like Chorus One), who actually do the work of processing transactions and securing the chain.

On the other hand, PoW chains tend to have even higher inflation early on. And that inflation mostly goes towards hardware (GPUs & ASICs) and electricity.

So in PoS, the token holder only suffers a little bit of dilution. Depending on what percentage of the token supply is being staked, they might actually increase the percentage of the total token supply they hold. In PoW, on the other hand, token holders do get diluted substantially over time and this value flows out of the ecosystem.