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Improving Proof of Stake Economic Security via MEV Redistribution

Published: 07 November 2022 Publication History

Abstract

Maximal Extractable Value (MEV) has generally been viewed as a negative, parasitic aspect of economic transactions on blockchains that increases costs for non-strategic users. Recent work has shown that MEV is not always bad for social welfare in crypto networks. In this note, we demonstrate that if rational validators in Proof of Stake (PoS) protocols are able to earn a portion of MEV revenue, by a process we call MEV redistribution, they are disincentivized to unstake and lower economic security. We construct a joint staking-lending dynamical system in which a fraction of MEV revenue is used to increase staking returns. We formally show that this MEV redistribution can avoid bad competitive equilibria between staking and lending in which no users stake under benign conditions on the reward inflation schedule of the protocol, and conduct numerical simulations that demonstrate this. This represents another potentially positive externality of MEV, provided that the mechanism for redistribution is well-designed.

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Cited By

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  • (2025)The Application of Proof of Stake: Advantages, Challenges and Future DevelopmentITM Web of Conferences10.1051/itmconf/2025730301373(03013)Online publication date: 17-Feb-2025
  • (2024)Blockchain CensorshipProceedings of the ACM Web Conference 202410.1145/3589334.3645431(1632-1643)Online publication date: 13-May-2024
  • (2024)Unraveling the MEV enigmaFuture Generation Computer Systems10.1016/j.future.2023.11.014153:C(70-83)Online publication date: 16-May-2024
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      cover image ACM Conferences
      DeFi'22: Proceedings of the 2022 ACM CCS Workshop on Decentralized Finance and Security
      November 2022
      80 pages
      ISBN:9781450398824
      DOI:10.1145/3560832
      Permission to make digital or hard copies of all or part of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for components of this work owned by others than ACM must be honored. Abstracting with credit is permitted. To copy otherwise, or republish, to post on servers or to redistribute to lists, requires prior specific permission and/or a fee. Request permissions from [email protected]

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      Published: 07 November 2022

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      Author Tags

      1. cryptocurrencies
      2. economic security
      3. proof of stake systems

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      View all
      • (2025)The Application of Proof of Stake: Advantages, Challenges and Future DevelopmentITM Web of Conferences10.1051/itmconf/2025730301373(03013)Online publication date: 17-Feb-2025
      • (2024)Blockchain CensorshipProceedings of the ACM Web Conference 202410.1145/3589334.3645431(1632-1643)Online publication date: 13-May-2024
      • (2024)Unraveling the MEV enigmaFuture Generation Computer Systems10.1016/j.future.2023.11.014153:C(70-83)Online publication date: 16-May-2024
      • (2024)Maximal extractable value: Current understanding, categorization, and open research questionsElectronic Markets10.1007/s12525-024-00727-x34:1Online publication date: 3-Oct-2024
      • (2023)Understanding the Security Risks of Decentralized Exchanges by Uncovering Unfair Trades in the Wild2023 IEEE 8th European Symposium on Security and Privacy (EuroS&P)10.1109/EuroSP57164.2023.00028(332-351)Online publication date: Jul-2023

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