Equilibrium staking rewards: Implications for PoS blockchain security

The security of Proof-of-Stake (PoS) blockchains is at the mercy of external return opportunities. We model how capital moves among staking opportunities. Consistent with the model, we find that higher opportunity costs of capital decrease the staking ratio in PoS blockchains, thereby reducing their security. On average, a 1% increase in Fed fund rate equates to a 0.089% drop in staking ratio. Moreover, a 1% increase in DeFi yields in other blockchains may lead to a 0.096% drop in a chain's future staking ratio. We derive economically grounded security measures for PoS blockchains, estimate them for major PoS blockchains, and use them to assess the overall security of the PoS ecosystem.