Analysis from the perspective of monetary mechanism: PoS has no future
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Analysis from the perspective of monetary mechanism: PoS has no future
The strength of ETH is less about its own merits and more about the weakness among its competitors and challengers.
Navigating Web3 tides with focused insightsAuthor: Crypto_Jaygo
Proof of Stake (PoS) was first proposed as early as 2012. With Ethereum's transition from Proof of Work (PoW) to PoS in 2022, the PoS model reached a peak in its development. The basic logic of PoS is that token holders stake their coins to become validators on the blockchain. These validators then verify transactions on the network and submit attestations to the blockchain. If correct, they receive rewards from the protocol. In practice today, this process has become much simpler—for example, most users simply deposit ETH into third-party protocols like Lido and passively earn staking yields, which is nearly equivalent to holding stocks and collecting dividends.
This appears to be a perfect solution: lower energy consumption, reduced issuance, happy token holders, and security comparable to PoW. Security is beyond the scope of this article—there are already numerous academic papers discussing it, for those interested. In fact, PoS is significantly less secure than PoW. This article will only examine the economic model of PoS from a monetary mechanism perspective. While ETH will often be used as an example, the discussion applies broadly to all PoS-based systems.
Historically, no successful currency has operated using a linear issuance mechanism like PoS. Shells cannot appreciate merely through hoarding—they must be mined from distant shores. Precious metals like gold and silver are the same: acquiring new supplies requires labor-intensive mining, refining, and processing. Historically, the interest rate on gold has been extremely low—so low that even Warren Buffett refuses to hold it, because it generates almost no yield. Bitcoin, as digital gold, must be competitively mined by miners; there are no shortcuts. Before modern times, mainstream currencies were entirely obtained through external mechanisms.
In modern times, most nations have issued sovereign currencies, backed by the credit of central monetary authorities. Sovereign currencies can grow in supply through mechanisms such as holding government debt. However, one must recognize that this is underpinned by state endorsement and coercive institutions that compel domestic populations to use legal tender. If individuals were truly free to choose their preferred currency, 99% of sovereign currencies would likely vanish. Cryptocurrencies lack such coercive backing, making sovereign currencies poor analogs. Moreover, blockchain-native currencies inherently disdain traditional fiat systems.
In the PoS world, the native project token typically serves as legal tender within its ecosystem—used for payments, for instance. Unlike gold or BTC, current holders in PoS systems continuously earn staking rewards, effortlessly receiving newly minted tokens. Meanwhile, outsiders must pay real money or exert significant effort to enter, placing them at a severe disadvantage. This imbalance is fundamentally unfair. Some may object: isn’t Bitcoin the same? My answer: actually, no. Take gold as an example. Imagine a system with only two people: Zhang San, a welfare recipient with zero assets, and Li Si, a billionaire who owns 100% of existing wealth. In the case of gold, the opportunity to acquire new units is fair—both must exert equal effort to mine a new coin. Thus, gold provides a level playing field. Of course, Li Si can choose to sell his existing holdings, but over time, his share will diminish, leading to wealth circulation and social mobility. The same holds true for Bitcoin. To obtain each additional bitcoin, everyone starts from the same starting line.
At its core, a currency cannot simultaneously fulfill both value storage and yield generation functions. Warren Buffett tells us that to preserve and grow capital, we should buy stocks. But stocks are not money—they do not serve as stores of value, but rather as instruments of value discovery. Forcing these two roles together creates Frankenstein-like constructs and Ponzi schemes, not sustainable, long-lived systems. Looking at monetary properties, Bitcoin’s yield is as low as gold’s, because while lenders abound, borrowers are scarce. Aside from short-sellers and niche cases, few people borrow gold or Bitcoin. When you think of stocks, you might immediately recall the Howey Test—ETH has long faced potential classification as a security. From a substance-over-form perspective, PoS tokens are essentially equities, and thus regulatory risks will persist indefinitely.
Regarding lower energy consumption—it’s a logical paradox. The most successful currency in human history—gold—requires enormous energy to mine and refine. Yet this very fact is what gives gold its unique value: across races and religions, gold is nearly universally recognized as high-value. The key insight here is that energy itself is the best measure of scarcity—the most universally accepted yardstick of value. Reducing energy consumption by 90% proportionally undermines the long-term credibility of the asset. By analogy, holding the U.S. dollar reflects confidence in the crystallization of human intellect—the vast R&D investments and capital expenditures behind it. Holding the Chinese yuan reflects trust in the workers on Foxconn assembly lines producing iPhones around the clock to earn foreign exchange. We hold these currencies because of the real-world energy and productivity behind them. Can you name a major sovereign currency whose foundation is low energy density?
A prediction: for PoS tokens, the highest-priority goal shifts from decentralization to price stability. Decentralization, censorship resistance, and low fees are no longer core objectives for PoS projects, losing priority and becoming increasingly unattainable. Decentralization is thankless work—it doesn’t improve efficiency and may anger investors. As a result, project teams won’t just ignore it; they’ll actively downplay its importance. Lowering transaction costs also becomes less critical, because sufficient token burning is required to prevent the entire economic model from collapsing.
Once financial interests are involved, the classic trilemma of "decentralization, security, and scalability" becomes secondary. A more relevant—and perhaps hidden—trilemma emerges: investor interests, price stability, and control. For project tokens, stability is paramount. Those with voting power are usually large holders, and stable prices already generate high enough returns. To maintain control over the project, they must continue holding their tokens. Observing major ETH institutional players reveals clear tendencies toward token accumulation and yield-seeking behavior.
But the core question remains: how to sustain this mechanism? You’ve saved costs by not paying miners. But in a continuously inflationary system, ongoing intellectual and resource investment is needed. Token burning only works if people keep investing and innovating—these inputs help stabilize the token price. Yet the precondition for anyone willing to invest time and resources is a relatively stable token price. After all, no one wants to pour limited energy into a declining ecosystem. So these two factors depend on each other. New investments create new excitement; new trends attract users and transactions, fueling ecosystem growth. The reverse leads to a downward spiral.
Early developers and investors in blockchains, whether BTC or ETH, have already achieved massive wealth gains. But psychologically, their mindsets differ slightly. BTC holders often suffer emotionally—either requiring deep faith like Michael Saylor, or enduring constant inner turmoil: “I should’ve sold when it hit $60K!” But selling BTC means parting with finite, irreplaceable units—once sold, they’re gone. ETH holders, by contrast, enjoy comfort—dividends roll in steadily, daily staking yields accumulate. Just live off the yield. Under these incentive structures, which group do you think has greater motivation to keep contributing?
Another feature of PoS projects is pre-mining—about 60% of ETH’s total supply, for instance, was pre-mined. A portion went to investors, another to the team, and some to the foundation. One role of the foundation is to continuously sell tokens into the market, which requires a constant inflow of new capital to absorb the supply. Once that demand dries up, a death spiral becomes inevitable.
Once decentralization is abandoned, we return to centralized old paths. Although we each hold private keys to our ETH wallets, how different are our NFTs really from paid profile pictures on Tencent QQ? Could we view QQ as a fully centralized blockchain protocol? Take ETH—the so-called king of PoS—as an example: over 60% of validator nodes run on cloud servers, most of them on Amazon Web Services. We worry about Pony Ma altering our data or seizing our QQ avatars—but we equally cannot trust Jeff Bezos to safeguard our blockchain assets.
My personal view: PoS has no future. ETH, the flagship PoS project, currently stands unchallenged—no other smart contract platform has reached its level. But ETH’s dominance says less about its strength and more about the weakness of its competitors. Should a new public chain emerge and gain traction in decentralization, ETH’s fortress could quickly crumble.
MakerDAO’s move to Solana sets a precedent for leaving the ETH ecosystem. Given MakerDAO’s pivotal role in Ethereum’s DeFi landscape, its departure carries massive symbolic weight. This directly triggered Vitalik’s anger—he dumped his MKR holdings and later stated bluntly in Discord that MakerDAO had “gone down the wrong path.” Whether it’s truly misguided, I don’t know—but I do know ETH got hurt. PoS encourages insular cliques, yet relies on continuous influxes of new resources to function. Now that someone is exiting, maintaining the base becomes even harder. If I were Vitalik, I’d probably curse out loud—only his calm demeanor kept him from doing so.
Most projects don’t collapse overnight. Decline is slow and prolonged—a gradual boiling frog scenario. It offers opportunities for many and softens the edges of deep-rooted problems. But eventually, people wake up, recognize the issues, and take action.
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