Efficiency vs Resilience: Collateral and Delegation in Proof-of-Stake Blockchains

Abstract:

Decentralization is the defining feature of blockchain technology: it reduces single points of failure by relying on many independent operators rather than few   intermediaries (such as banks) to validate transactions. Yet, an increasing share of blockchain validation activity is delegated to large professional managers, exposing networks to concentration risk. Motivated by the September 2025 Kiln security incident, we develop a model of  Proof-of-Stake blockchain protocols in which independent validators differ in both wealth and the cost of exerting  effort to maintain a reliable infrastructure, and are compensated in proportion to committed capital ("stake"), which also serves as collateral. Higher minimum stake requirements provide stronger incentives for independent validators to invest in operational reliability, but they also raise barriers to participation, shifting capital toward professional delegation. Delegation can improve efficiency, through economies of scale, but it also concentrates operational risk. The protocol designer sets the minimum stake requirement to balance the benefits of decentralization (resilience), against those of professionalization and operational discipline (efficiency).