The Value of Proof-of-Stake Tokens

Example Atoms

The recent discussion by Zaki Manian and Ben Weintraub (see https://www.youtube.com/watch?v=3JwlbSAjKAI&t=) got me thinking about the value of proof-of-stake tokens. Ben Weintraub is referring to the this article during the discussion and claims Cosmos needs to handle 40.000 transactions per second (TPS) to be valued at the current price. I think the article is fundamentally flawed, since storing something on a public cloud and storing something immutable (forever?!) on a blockchain aren’t the same thing.

In my opinion, it makes more sense to look at the value of Atoms or any proof-of-stake tokens from a potential fees/income perspective with the following equation:

(Transaction Fees - Validator Fees) x Used TPS x 365 x 60 x 60 x 24/Total Supply at the Time of Staking = Income per Token per Year

For example, in the case of Atoms, the equation could look like the following:

(0.01–0) x 200 x 365 x 60 x 60 x 24/ 242360330 = 0.26024061

The assumptions are:

An average transaction fee of 4 cents (You can argue that this is way too low to store something forever based on the shared security model)

No validator fees

An average of 200 used transactions per second

Your Atoms are staked, and you don’t lose something percentage-wise because of the inflation. In reality you probably gain a little bit percentage-wise because not all Atoms are staked.

This would result in an interest rate of 26 %.

The two most important variables in this equation are: used transactions per second and how secure is the network (= transaction fee). Something like Inter-Blockchain Communication (IBC), in this case, helps to increase the number of used transactions per second. For Ethereum 2.0 the number of used transactions will be mainly increased via smart contracts.

Obviously, like any economic equation, it’s oversimplified. Let me know what you think about this approach.