How crypto staking amplifies return volatility

Abstract

Proof-of-stake protocols lock tokens into staking positions, shrinking the tradable float. We develop a continuous-time model in which price-impact volatility is a convex decreasing function of the float. Two results emerge. Conditional return variance amplifies as the float contracts, with amplification accelerating in high-staking regimes. Protocol changes that shift the long-run staking target produce persistent volatility regime transitions, with convergence speed governed by protocol adjustment capacity. Liquid-staking tokens attenuate both effects, with attenuation increasing in their liquidity parameter.