Liquid Proof-of-Stake in Tezos: An Economic Analysis

In this paper, we investigate some economic fundamentals related to the Tezos blockchain platform under the Emmy* consensus protocol. The protocol is based on a liquid version of Proof-of-Stake, in the sense that users can temporarily delegate some or all of their Tz units to full nodes. In addition to increasing the stake of the full node, and thus the probability of being selected as a block baker/endorser, such delegation induces the property of the super-additivity of users' selection probability of baking/endorsing a block. That is, with delegation, the selection probability may be larger than the sum of the selection probabilities without delegation. In this paper, we study how monetary holdings and stakes can evolve with time, also discussing the individual user and the market implications of delegation.