Last Updated on 28. April 2023 by Martin Schuster

Short selling means borrowing an asset (e.g., stock) from the market. At some point in time, the short seller has to purchase the stock to cover his position. Short selling is a bet on falling stock prices. If the short seller can sell the stock for 100 EUR at t₀ and buys it in t₁ for 90 EUR, he made a profit of 10 EUR.

If many people short sell stocks, this can be interpreted as a sign of falling stock prices.

Since PoS relies on the value of the underlying native coin (e.g., ETH), an attacker can massively short sell ETH and hope to trigger a panic, since many market participants see this as a sign of declining prices. This causes the prices to drop in reality giving the attacker the opportunity to buy the coins cheaply, gaining a massive share of the total stake. If he manipulates the operation of the network with his coins, the price will drop further because the blockchain appears to be not reliable. This gives the short seller even better prices to buy coins and cover his outstanding position. This is a typical example for a game outside the game.