Economics of Ethereum
Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)
- Chair: Andreas Park, University of Toronto
Time is Money: Strategic Timing Games in Proof-of-Stake Protocols
AbstractWe propose a model suggesting that honest-but-rational consensus participants may play timing games, and strategically delay their block proposal to optimize MEV capture, while still ensuring the proposal's timely inclusion in the canonical chain. In this context, ensuring economic fairness among consensus participants is critical to preserving decentralization. We contend that a model grounded in honest-but-rational consensus participation provides a more accurate portrayal of behavior in economically incentivized systems such as blockchain protocols. We empirically investigate timing games on the Ethereum network and demonstrate that while timing games are worth playing, they are not currently being exploited by consensus participants. By quantifying the marginal value of time, we uncover strong evidence pointing towards their future potential, despite the limited exploitation of MEV capture observed at present.
Inclusion and Democratization Through Web3 and DeFi? Initial Evidence from the Ethereum Ecosystem
AbstractWeb3 and DeFi are widely advocated as innovations for greater financial inclusion and democratization. We assemble the most comprehensive dataset to date on the largest Web3 ecosystem and use large-scale computing to investigate the claim. We discuss Ethereum's network structure, time trends, and distributions of transactions, mining, and ownership. Mining income and Ether ownership are concentrated in a few nodes, even after excluding exchange and mining pool wallets, with inequalities more exacerbated than observed in the real economy. Network activities are dominated by large transactions, shifting from peer-to-peer to user-DApps/DeFi interactions, and from Ether-based to ERC-20-token-based. High percentage transaction fees, congestion-induced gas-price fluctuation, suboptimal reserve setting, and large return volatility of tokens disproportionately harm small, unsophisticated, and new nodes, with high failure rates hurting all users. Finally, we present causal evidence that base-fee burning mechanisms (e.g., EIP-1559) and airdrop programs (e.g., OmiseGo Airdrop) promote inclusion and equality through monetary redistribution.
- G2 - Financial Institutions and Services
- O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights