Title: Single-token vs Two-token Blockchain Tokenomics

Abstract: We consider long-term equilibria that arise in the tokenomics design of proof-of-stake (PoS) blockchain systems that comprise of users and validators, both striving to maximize their own utilities. Validators are system maintainers who get rewarded with tokens for performing the work necessary for the system to function properly, while users compete and pay with such tokens for getting a desired system service level.
We study how the system service provision and suitable rewards schemes together can lead to equilibria with desirable characteristics (1) viability: the system keeps parties engaged, (2) decentralization: multiple validators are participating, (3) stability: the price path of the underlying token used to transact with the system does not change widely over time, and (4) feasibility: the mechanism is easy to implement as a smart contract, i.e., it does not require fiat reserves on-chain for buy back of tokens or to perform bookkeeping of exponentially growing token holdings. Furthermore, we consider both the common single-token PoS model and a less widely used two-token approach (that roughly, utilizes one token for the users to pay the transaction fees and a different token for the validators to participate in the PoS protocol and get rewarded). Our approach demonstrates, for the first time to our knowledge, concrete advantages of the two-token approach in terms of the ability of the mechanism to reach equilibrium.