Logo
ScienceStack
Table of Contents
Fetching ...
Sign In

Maximizing Miner Revenue in Transaction Fee Mechanism Design

Ke Wu, Elaine Shi, Hao Chung

TL;DR

The paper addresses the challenge of designing transaction fee mechanisms (TFMs) for blockchains that maintain user and miner incentives in a decentralized, cryptography-enabled setting. It identifies a prior zero-miner-revenue barrier under standard incentive notions and introduces a mild, known-$h$ reasonable-world assumption to bypass this limit. The authors propose two main approaches for infinite block sizes—a threshold-based mechanism and an LP-based mechanism—achieving asymptotically optimal miner revenue proportional to the honest-user mass, while ensuring Bayesian incentive compatibility and side-contract proofness; the LP-based method requires a bound on fake bids. For finite block sizes, they present a diluted threshold-based mechanism (approximate IC) and an LP-based mechanism with random selection (strict IC for $c=1$) and show that, with $c\ge2$, achieving nonzero user welfare becomes impossible. Overall, the work demonstrates how reasonable-world assumptions and MPC-enforced rules can recover substantial miner revenue while maintaining strong incentive guarantees, thereby bridging cryptography and mechanism design in decentralized finance.

Abstract

Transaction fee mechanism design is a new decentralized mechanism design problem where users bid for space on the blockchain. Several recent works showed that the transaction fee mechanism design fundamentally departs from classical mechanism design. They then systematically explored the mathematical landscape of this new decentralized mechanism design problem in two settings: in the plain setting where no cryptography is employed, and in a cryptography-assisted setting where the rules of the mechanism are enforced by a multi-party computation protocol. Unfortunately, in both settings, prior works showed that if we want the mechanism to incentivize honest behavior for both users as well as miners (possibly colluding with users), then the miner revenue has to be zero. Although adopting a relaxed, approximate notion of incentive compatibility gets around this zero miner-revenue limitation, the scaling of the miner revenue is nonetheless poor. In this paper, we show that if we make a mildly stronger reasonable-world assumption than prior works, we can circumvent the known limitations on miner revenue, and design auctions that generate optimal miner revenue. We also systematically explore the mathematical landscape of transaction fee mechanism design under the new reasonable-world and demonstrate how such assumptions can alter the feasibility and infeasibility landscape.

Maximizing Miner Revenue in Transaction Fee Mechanism Design

TL;DR

The paper addresses the challenge of designing transaction fee mechanisms (TFMs) for blockchains that maintain user and miner incentives in a decentralized, cryptography-enabled setting. It identifies a prior zero-miner-revenue barrier under standard incentive notions and introduces a mild, known- reasonable-world assumption to bypass this limit. The authors propose two main approaches for infinite block sizes—a threshold-based mechanism and an LP-based mechanism—achieving asymptotically optimal miner revenue proportional to the honest-user mass, while ensuring Bayesian incentive compatibility and side-contract proofness; the LP-based method requires a bound on fake bids. For finite block sizes, they present a diluted threshold-based mechanism (approximate IC) and an LP-based mechanism with random selection (strict IC for ) and show that, with , achieving nonzero user welfare becomes impossible. Overall, the work demonstrates how reasonable-world assumptions and MPC-enforced rules can recover substantial miner revenue while maintaining strong incentive guarantees, thereby bridging cryptography and mechanism design in decentralized finance.

Abstract

Transaction fee mechanism design is a new decentralized mechanism design problem where users bid for space on the blockchain. Several recent works showed that the transaction fee mechanism design fundamentally departs from classical mechanism design. They then systematically explored the mathematical landscape of this new decentralized mechanism design problem in two settings: in the plain setting where no cryptography is employed, and in a cryptography-assisted setting where the rules of the mechanism are enforced by a multi-party computation protocol. Unfortunately, in both settings, prior works showed that if we want the mechanism to incentivize honest behavior for both users as well as miners (possibly colluding with users), then the miner revenue has to be zero. Although adopting a relaxed, approximate notion of incentive compatibility gets around this zero miner-revenue limitation, the scaling of the miner revenue is nonetheless poor. In this paper, we show that if we make a mildly stronger reasonable-world assumption than prior works, we can circumvent the known limitations on miner revenue, and design auctions that generate optimal miner revenue. We also systematically explore the mathematical landscape of transaction fee mechanism design under the new reasonable-world and demonstrate how such assumptions can alter the feasibility and infeasibility landscape.
Paper Structure (75 sections, 27 theorems, 76 equations)

This paper contains 75 sections, 27 theorems, 76 equations.

Table of Contents

  1. Introduction
  2. Limit on miner revenue.
  3. Our Results and Contributions
  4. Reasonable-world assumption: known lower bound on the number of honest users.
  5. Mechanisms for infinite block size.
  6. Mechanisms for finite block size.
  7. Necessity of Bayesian equilibrium.
  8. Philosophical Discussions about Our Assumptions and Modeling
  9. Known-$h$ assumption.
  10. Limited fake bids.
  11. Robustness w.r.t. parameter estimation.
  12. Independent identically distributed true values assumption.
  13. Additional Related Work
  14. TFM in a Bayesian setting.
  15. Cryptography meets game theory.
  16. ...and 60 more sections

Key Result

Theorem 1.1

In the known-$h$ model, no MPC-assisted mechanism that simultaneously satisfies UIC, MIC, and SCP (even in the Bayesian setting) can achieve more than $h \cdot \mathbf{E}(\mathcal{D})$ expected miner revenue where $\mathbf{E}(\mathcal{D})$ denotes the expectation of the value distribution $\mathcal{

Theorems & Definitions (52)

  • Theorem 1.1: Informal: limit on miner revenue in the known-$h$ model
  • Theorem 1.2: Informal: threshold-based mechanism
  • Theorem 1.3: Informal: LP-based mechanism
  • Theorem 1.4: Informal: diluted threshold-based mechanism
  • Theorem 1.5: Informal: LP-based mechanism with random selection
  • Theorem 1.6: Informal: finite block, $c \geq 2$
  • Remark 2.1: A note about the median assumption
  • Remark 2.2: On the robustness of parameter estimation
  • Remark 2.3
  • Definition 3.1: Bayesian incentive compatibility
  • ...and 42 more