A Macro Finance Model for Proof-of-Stake Ethereum

Abstract

This paper presents a dynamic equilibrium model of Ethereum's macroeconomy. The model captures agents' decisions regarding ETH holdings, staking, and the use of blockspace on both the Ethereum mainnet and Layer 2 networks. The ETH supply evolves according to protocol rules. The model's long-run behavior is characterized analytically, and key properties of the staking share and the price of ETH are derived. The model is calibrated using market data on ETH prices and transaction fees. Alternative issuance curves are evaluated for their effectiveness in managing staking levels.