Staking Pools on Blockchains
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Several proof-of-stake blockchains allow for "staking pools", i.e. agents interested in validating transactions can open a pool to which others can delegate their stake. We develop a game-theoretic model of staking pool formation in the presence of malicious agents who want to disrupt the blockchain. We establish the existence and uniqueness of equilibria. Moreover, we identify the potential and risk of staking pools. First, staking pools can never increase current blockchain security over a system in which such pools are not allowed. Yet, by optimally selecting the distribution of the validation returns, honest stakeholders obtain higher returns, which may be beneficial for future blockchain operations. Second, by choosing welfare optimal distribution rewards, staking pools prevent from allocating large rewards to malicious agents. Third, when pool owners can freely distribute the returns from validation to delegators, staking pools disrupt blockchain operations, since malicious agents attract all delegators by distributing most of the returns to them.
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