Staking

The security of the PegaSys network is derived from Ethereum. To participate in the PegaSys network, each node must stake wBTC in an Ethereum staking contract. The staked wBTC tokens are subject to slashing in the case that the node exhibits provably malicious behaviour. As demonstrated in the following section, the TVL safely manageable by the network is proportional to the square of the total stake. Therefore, in order to prevent market fluctuations from affecting this ratio, the asset staked is wBTC.

The network is designed to withstand up to f faulty nodes out of a total of 3f + 1 nodes, meaning it can function correctly as long as fewer than one-third (approximately 33%) of the nodes are faulty. However, if more than one-third of the nodes collude, the network’s integrity may be compromised, and our users’ funds will be at risk. Since this outcome is unacceptable, the system incorporates a game theory-based mechanism which can tolerate collusion of any size in the presence of at least one honest node.

Quadratic Staking Impact

This mechanism incentivizes nodes to detect and report collusion by offering them all the stake in the system as a reward for reporting an offense. The goal is to make it more profitable for at least one node to act honestly than for anyone to collude, thereby making collusion an irrational choice for any node.

Consider a system with N nodes, where each node must stake a fixed amount S of wBTC to participate. The total staked amount across the network would then be N · S wBTC. If the protocol allows a single honest party to provably report misconduct by a malicious majority and claim their stake, the cost of bribing a single node is (N − 1)S. It follows that the cost of bribing the whole system is N(N − 1)S, ensuring that the system can safely control O(S*N^2 ) TVL. This is an imperative property since the network should control more in TVL than its total stake, otherwise is no incentive to be a part of the protocol.