The Tezos baking economics is based on a target of 100% baking. Yet, if a unit of tezos is baking, this unit cannot (as far as I can see), be used in standing orders for trade. This is, I either have my tezos in my wallet, or in a trading account (e.g. Kraken). I can only bake with the former, but I can only trade with the latter. For instance, you can see here, in the column headed "Grouping", a set of standing orders of buyers and sellers (the actual list and volumes is much much bigger; if you have an account with them you can see that). These are all tezos not being used for baking. Yet, they create the market for tezos!

So, baking and market-creation are incompatible activities. This might be a "problem" inherent to Proof-of-Stake models. Is this actually a problem? Does it undermine the tradability/liquidity of the coin, as people have incentives to have their tezos engaged in baking? Perhaps a few big players have more market power to manipulate the exchange rate?

3 Answers 3


Some exchanges distribute baking rewards to their holders (e.g. gate.io), so I believe this will help with that as users can receive staking rewards and be in a position to trade. Also, delegators (e.g. users who are just delegating their stake) are free to move their tez to exchanges and trade as they are not restricted by bond deposits.

  • "delegators are free to move their tez to exchanges and trade as they are not restricted by bond deposits." What? So I can delegate my tezos and trade them? E.g. I can delegate them and sell them? And still earn tezos from delegated baking? Sound ilogical.
    – luchonacho
    Commented Feb 13, 2019 at 15:08
  • It’s not illogical, once the snapshot for the baking right is set then in principle you are free to move your xtz somewhere else however the baker may not like it and refuse your delegation in the future
    – Ezy
    Commented Feb 13, 2019 at 18:08
  • @Ezy Shouldn't be allowed. Might actually lead to over baking. Say I have 1K tezos, delegate them, then sell them, and someone else bakes with them. Same tezos used to double baking.
    – luchonacho
    Commented Feb 13, 2019 at 18:35
  • 1
    @luchonacho you are confused. When you delegate to someone the xtz are still yours.
    – Ezy
    Commented Feb 13, 2019 at 19:04
  • 2
    Snapshots are taken in the past, so you trade your tezzies and still earn rewards for that past snapshot when you held them. The new owner won't be able to earn rewards until a new snapshot is taken in the future to capture their ownership. Commented Feb 13, 2019 at 23:35

There is an equilibrium that is naturally found between baking and trading that corresponds to liquidity preference of individual holders. If the market has a high volatility then perhaps a higher fraction of people will stop baking/delegating to get their tokens on exchange.

The price to pay for this immediate liquidity is of course dilution and as the percentage non baking gets higher then the opportunity cost of not baking increases.

The economics of tezos does not target 100% baking. It just needs enough to support a decentralized ecosystem of bakers and a not too high capital cost for each baker due to bond requirements.

  • Why would someone exchange their tezos if there is high volatility?
    – luchonacho
    Commented Feb 13, 2019 at 18:37
  • @luchonacho for market making purpose for example
    – Ezy
    Commented Feb 13, 2019 at 19:00

The tezos baking economics is not based on a target of 100% baking. In fact in your linked spreadsheet it assumes

% Tezos Actively Staking/Baking 44%

At the time of writing tzscan.io reports a staking ratio of 79%.

Tezos doesn't require 100% baking to run. It actually works well with a much smaller percentage. In theory it could run with only one Baker online who has only 1 roll (10k XTZ, at time of writing corresponding to 0.001% of all XTZ). That baker then would bake all blocks and endorse them as well.

Anyway, exchanges could bake their customers XTZ-deposits while the customers are trading on the exchange. In that case 100% baking ratio doesn't prevent a market for Tezos to exist.

Furthermore, there are currently 784,326,213 XTZ in circulation. This corresponds to 78,432 rolls - each 10k XTZ - that could be used for baking. So if all those rolls were baking there would be 6,213 XTZ left to compose a market.

  • "even if 100% were baking it still could be that a few percent of that are exchanges that baking their customers Tez." Can you clarify this please? I don't get what you mean.
    – luchonacho
    Commented Feb 13, 2019 at 19:04
  • "So if all those rolls were baking there would be 6,213 XTZ left to compose a market." That is pretty awful liquidity. That's less than 0.5% of daily trading in XTZ/BTC, 10% of daily trading in XTZ/EUR, etc. Hardly a healthy market.
    – luchonacho
    Commented Feb 13, 2019 at 19:09
  • @luchonacho some exchange may offer baking-as-a-service for example on the balance you allocate to them
    – Ezy
    Commented Feb 13, 2019 at 19:10
  • @luchonacho I edited my post to clarify regarding exchanges baking. Commented Feb 13, 2019 at 19:13
  • @luchonacho regarding the 6,213 XTZ: not saying that it is realistic but that it is in theory possible Commented Feb 13, 2019 at 19:15

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