A fundamental problem for decentralized systems like permissionless blockchains is that their security depends upon the cost of an attack being greater than the potential reward from it. Various techniques are used to impose these costs, generally either Proof-of-Work (PoW) or Proof-of-Stake (PoS). These costs have implications for the economics (or tokenomics) of such systems, for example that their security is linear in cost, whereas centralized systems can use techniques such as encryption to achieve security exponential in cost.
Now, via Toby Nangle's
Stablecoin = Fracturedcoin we find
Tokenomics and blockchain fragmentation by Hyun Song Shin, whose basic point is that these costs must be borne by the users of the system. For cryptocurrencies, this means through either or both transaction fees or inflation of the currency. The tradeoff between cost and security means that there is a market for competing blockchains making different tradeoffs. In practice we see a vast number of
competing blockchains:
Tether’s USDT sits on 107 different ledgers. ... USDC sits on 125.
The chart shows Ethereum losing market share against competing blockchains.
Shin's analysis uses game theory to explain why this fragmentation is an inevitable result of tokenomics. Below the fold I go into the background and the details of Shin's explanation.
