Fayçal Drissi, University of Oxford and the Oxford-Man Institute; Zachary Feinstein, Stevens Institute of Technology; Basil Williams, ³Ô¹ÏºÚÁÏ Business School. 'Liquid Staking and the Limits of Policy.' Working paper, 2026.
Problem
A blockchain is a shared record of who owns which digital tokens, like a public list of every transaction ever made, maintained not by a bank or a company but by thousands of computers around the world. For that system to work, computers run by volunteers confirm that each new transaction is genuine and add it to the record. To prove they are trustworthy, those volunteers put up some of their own money as a deposit. If they cheat, they lose it. If they behave, they earn a reward. That deposit is called a stake.
Liquid staking, where you pay a company to put up the deposit on your behalf promises rewards without sacrifice. But rigorous modelling reveals it may be making these blockchain networks less secure.
For years, it was assumed that paying more rewards would attract more participants to these networks and strengthen security. Nobody had formally tested whether that assumption still held.
Science
We built a dynamic macro-finance framework, a mathematical system that tracks how decisions and prices evolve over time, to study how reward policy, productivity and security interact in blockchain networks. We first modelled a network without the newer staking option, showing how rewards act as a tax on productive activity: new tokens paid to participants are funded by diluting the returns of everyone else. We then extended the model to include the newer option.
Outcome
Paying more rewards only works up to a point. Beyond that point, the rewards themselves start to shrink, because the activity that funds them has been taxed too heavily. When the newer option is available, the problem changes. Users can earn rewards without giving anything up. So when the network pays out more, behaviour barely changes. People simply carry on as before. The network can appear to have strong participation while a handful of companies quietly control most of it. More rewards, less real security.
Change
We now have a formal model showing that a tool designer have long relied on can stop working. The findings have direct implications for the design of secure, genuinely decentralised proof-of-stake systems and the regulatory frameworks governing them. Our research calls on designers and governance bodies to account for the newer staking option when setting reward levels. It also raises a broader question for regulators: as financial innovation allows users to sidestep the costs that policy creates the standard tools for managing these networks may need to be rethought.