A far better written explanation of Earnings and Losses of PoS Stakeholders than I had. Care of Hondo.
Typically only about 25% of the money supply for a given Proof-of-Stake (PoS) coin is subject to continuous staking. This "fractional staking" leads to (1) gains for those who stake (minters) and (2) losses for those who don't (non-minters). Fractional staking therefore results in wealth transfer from non-minters to minters because inflation of the money supply is lower than it would be if the entirety of the money supply were continuosly staked.
To understand how wealth is transferred, it is helpful to quantify wealth as an individual's ownership of the total money supply of a given coin. For example, if an individual holds 1000 coins of a money supply of 100,000, then the individual's wealth is quantified as 1%.
The following example uses a 20% APY as an example because this value typically leads to a reasonable inflation rate of about 5% per year, given that all coins are subject to approximately the same fractional staking of 25%.
Note the following values:
- Total money supply after 1 year: 105% (5% inflation)
- Relative number of coins after one year for a minter: 120% (20% APY)
- Relative number of coins after one year for a non-minter: 100%
Using these values, the relative wealth of a minter after one year is 114% (120% / 105%). In other words, a minter who stakes continuously grows wealth at the rate of 14% per year. Thus, a minter of a coin with a 20% APY doesn't just keep up with inflation, but beats it by 14%!
On the other hand, a non-minter loses wealth over time. After a year, a non-minter's total coins is 100% of what it was at the beginning of the year. Therefore, a non-minter's drops to 95.2% during this time, losing wealth at the rate of 5% per year.
It is also possible to calculate a non-minter's losses in terms of forgone profits, which is 19.7% ([114% - 95.2%] / 95.2%). Thus, a non-minter could have nearly 20% more wealth if they had staked their coins ([114% - 95.2%] / 95.2%). Not coincidentally, these lost profits are approximately equal to the nominal APY.
