People will talk in circles here because “sustainability” is often poorly ever defined. So let’s be concrete. All PoW or PoS networks are fundamentally “sustainable” in that permissionless operators will always be incentivized to run them so long as users are willing to pay a nonzero amount of money to use them.

• If REV ≥ expenses required by operato

... See more

The biggest misconception to dispel is that L2s are a magically profitable design vs. L1s because they don’t have to pay inflation. If you’ve read the article up to here, this should be clear to you why this is incorrect. As we have established, PoS issuance is not a “cost to the network.” It isn’t even a net expense to tokenholders in aggregate.

We covered a lot of ground here, so let’s summarize our key takeaways here:

• Cryptonetworks are not companies. Income/expense/profit metrics generally do not logically apply at this level. We can try to assess the profitability of all token holders, and/or subsets of them.


• PoS issuance to stakers is not a “cost to the network,” and it isn’t even a net

... See more

Crypto is designed to break down barriers, allowing the best money to rise to the top. We see this behavior in stablecoins, where >99% of stablecoins are US dollars. There isn’t a whole lot of organic demand for fiat currency #109. Many people are artificially restricted from holding dollars offchain, which is a major reason for the success ... See more

PoW Token Holders’ Net Income = – Issuance

PoS – Imagine a PoS network with 1mm validators, costing $100mm p.a. to run. Users pay $200mm p.a. in REV, and the chain issues $800mm in tokens p.a. to stakers. Operators take a 10% cut on TEV ($100mm here). The “profit = fees – issuance” proponents will say this is unsustainable: $200mm fees – $800mm issuance = $600mm loss! This doesn’t hold up.

... See more

When people argue that “issuance is a cost” in PoS networks, it’s usually a fuzzy attempt to get at “isn’t inflation bad for token value capture somehow? It seems like it should be bad, right?” However, the only real expense to token holders in aggregate is the payment made to operators. This is usually seen in staking commissions in PoS vs. PoW wh... See more

Next, we will strip out inflation, giving us network REV (Real Economic Value):

REV = Network Fees + MEV Tips

REV excludes issuance, as that is not real value generated.