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Leased proof-of-stake (LPoS), explained

This article provides a deep dive into leased proof-of-stake (LPoS), establishing how it works, its benefits, key features and its role in blockchains.
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This article provides a deep dive into leased proof-of-stake (LPoS), establishing how it works, its benefits, key features and its role in blockchains.

Understanding leased proof-of-stake

LPoS is a type of PoS meant to increase mining power, address inherent issues found in PoW, and improve other types of PoS, such as delegated proof-of-stake (DPoS).

Regular cryptocurrency users have probably come across the term proof-of-stake (PoS) when dealing with crypto staking, but what is leased proof-of-stake (LPoS), and is there a connection between the two?

Yes, they are related, as LPoS is simply a variant of the PoS system. Proof-of-stake is a key element of the blockchain consensus mechanism, where validators participate in staking to generate and validate transaction blocks.

Validators on proof-of-stake platforms typically have to stake more cryptocurrency to improve their chances of block generation, and here is where LPoS comes in handy. Tokenholders who don’t have the technical know-how or financial muscle can lease their tokens to validator node operators, enhancing the validator’s chance to receive the opportunity to create new blocks. In return, they will earn a share of the transaction fee paid to the validator.

In an LPoS environment, tokenholders can lease their stake or run a full node. However, the more tokens staked by a node, the better its chances of being selected to generate a new block. LPoS allows users to acquire the proceeds of mining without going through the mining process.

How leased proof-of-stake works

 LPoS operates on the same premises as a lottery in that more stakes increase someone’s chances of winning rewards.

So, how does leased proof of stake work? The LPoS system follows a series of set processes:

  • Create a lease transaction: Tokenholders lease coins to a node, specifying the amount and recipient address. Leases can be canceled at any time.
  • Wait for block generation: Leased funds join a node’s pool, increasing the chance of winning the next-block lottery.
  • Consensus participation: LPoS lets leasers join the consensus process; larger nodes have better odds of generating the next block.
  • Generate blocks: Winning nodes validate transactions, compile them into blocks, and earn transaction fees as rewards.
  • Share rewards: Node operators distribute rewards to leasers based on their investment, with higher stakes leading to more substantial rewards.

Please note that the leased tokens never actually leave the leaser’s hardware wallet and remain in total control of the tokenholder. The holder only links the chosen node(s) and doesn’t transfer the tokens to the said node.

No party can trade or transfer the tokens, including the holder. The holder can only transact or spend the allotted coins upon canceling the lease. 

Key features of leased proof-of-stake

Some of the features of LPoS include decentralization, balance leasing, fixed tokens and scalability. 

The main features of LPoS include:

Balance leasing 

Leased tokens do not transfer to validators, nor can they be traded. Users can lease out their tokens and money from cold storage or wallets.

Decentralized

LPoS divides rewards based on the staked amount, doing away with the need for a mining pool. It’s also great for blockchain governance, as it uses a peer-to-peer protocol to prevent third-party intervention.

Unpredictable block generation

There’s no way to predict who will win the right to generate the next block. The only thing worth noting is that the bigger a node’s economic stake, the greater its chances of winning the right to generate the next block.

Fixed tokens

Mining does not add more tokens to LPoS, as the system only allows token leasing.

Scalability

Developers of LPoS prioritize high-on-chain scalability over second-tier apps.

Rewards

Other blockchain systems offer block token rewards, but LPoS issues transaction fees to reward successful node operators.

The role of LPoS in blockchain validation

LPoS is a type of PoS used to validate cryptocurrency transactions in a blockchain network. 

LPoS utilizes nodes or network devices to verify and validate blockchain transactions. Node-based validation uses computational randomness, hinged on the financial stake of a node, to assign rights to validate blockchain transactions.

A PoS consensus algorithm relies on these factors to determine what node is best fit to validate transactions at any given time:

  • Age of tokens: The longer the staked tokens remain unused on the LPoS platform, the better the chances of being selected to validate the next transaction. The instant the stake verifies LPoS transactions, its age resets to zero.
  • Size of stake: The greater the stake, the better the chance of validation selection.

PoS uses passive cryptocurrency deposits rather than the raw computational power in mining hardware used in proof-of-work (PoW) systems, making PoS more resource-efficient than PoW.

Currently, two leading blockchains use LPoS. The first is the Waves blockchain, which uses the LPoS consensus algorithm to verify the blockchain’s state by allowing users to lease tokens to generating nodes and receive rewards distributed by these nodes. Finally, Nix utilizes a permissionless staking mechanism that allows users to stake through a different third-party wallet, with the third party responsible for the staking.

NIX LPOS wallet

Benefits of leased proof-of-stake

The many benefits of LPoS stem from gaining rewards without actively trading, increasing your chances of receiving rewards by joining a larger node, and the inherent security features hard-baked into the LPoS process.

One can realize several benefits from engaging in LPoS:

Passive investment 

Users can participate in block generation and receive some rewards without actually participating in the block-generating process.

Allows smaller investors to participate

LPoS protocols contain a minimum investment requirement for network participation. For instance, Waves only allows a node to participate in block generation if it has a minimum of 1,000 Waves (WAVES). Investors with less than this can lease cryptocurrency tokens to more prominent nodes for a chance at gaining rewards.

Difficult to manipulate

The LPoS generating balance rule calculates the lowest balance after considering leasing in the latest 1,000 blocks, thwarting manipulation attempts by moving funds between accounts.

Increases chances of winning rewards 

The LPoS works in a way that rewards nodes with the most significant economic stake in the network. Therefore, leasing tokens to a bigger node increases the chances of receiving rewards than if the leaser decided to go solo.

Retain ownership

No one can trade or transfer the leased tokens (which won’t even leave the wallet), minimizing the chances of loss.

Low barrier to entry

It does not require mining hardware to participate in validation.

LPoS crypto mining alternatives

Alternatives to LPoS that utilize PoS include delegated proof-of-stake, pure proof-of-stake and proof-of-validation.

While technically not a way to mine cryptocurrencies, PoS allows users to validate transactions and create new blocks on a blockchain. LPoS enables users to lease crypto tokens to nodes that validate LPoS transactions.

Several alternatives to LPoS allow users to make use of the PoS consensus mechanism:

Delegated proof-of-stake (DPoS)

Users can delegate the production of new blocks to delegates or witnesses through a democratic voting system, with votes weighted by the number of tokens held on a platform.

Pure proof-of-stake (PPoS) 

This one is mainly used by the Algorand blockchain for the development of decentralized applications (DApps). Users can cast their votes to select representatives who vote on proposals and propose new blocks.

Proof-of-validation (PoV)

This aims to achieve consensus through staked validator nodes. The number of tokens staked with each validator determines the validator’s voting numbers. When a validator with a minimum of two-thirds of the network’s total voting submits a commit vote on a block, that validates the new block.

Hybrid proof-of-stake (HPoS) 

Some LPoS protocols leverage the power of PoS and PoW. They use PoW to create new block housing transactions and use PoS to validate the blocks.

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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6 hours ago

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March 9, 2024

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Mortgage rates fall as labor market normalizes

Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

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21 hours ago

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March 8, 2024

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Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.

The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.

From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250


Below is an explanation of how we got here with the labor market, which all started during COVID-19.

1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.

2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.

Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.  

2-US_Job_Quits_Rate-1-2

3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too

Total employment data

4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels. 




From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.

Here are the jobs that were created and lost in the previous month:

IMG_5092

In this jobs report, the unemployment rate for education levels looks like this:

  • Less than a high school diploma: 6.1%
  • High school graduate and no college: 4.2%
  • Some college or associate degree: 3.1%
  • Bachelor’s degree or higher: 2.2%
IMG_5093_320f22

Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January…

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21 hours ago

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March 8, 2024

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Inside The Most Ridiculous Jobs Report In History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let's take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.

Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...

... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...

... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...

Source: St Louis Fed FRED Native Born and Foreign Born

... but there has been zero job-creation for native born workers since June 2018!

This is a huge issue - especially at a time of an illegal alien flood at the southwest border...

... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Tyler Durden Fri, 03/08/2024 - 13:30

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