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Designing Redistribution Mechanisms for Reducing Transaction Fees in Blockchains

Sankarshan Damle, Manisha Padala, Sujit Gujar

TL;DR

This paper addresses the problem of high transaction fees in public blockchains by introducing Transaction Fee Redistribution Mechanisms (TFRMs) that redistribute VCG surplus as rebates to reduce user payments while preserving allocative efficiency and incentive compatibility. It reveals fundamental impossibilities when miners can manipulate the system and when rebates are restricted to confirmed transactions, motivating robust approaches. The authors propose Robust TFRM (R-TFRM), which guarantees strictly positive redistribution at the cost of miner IR, and R^2-TFRM, which adds trusted on-chain randomness to ensure positive rebates in expectation while preserving IR for miners in expectation. Overall, the work lays a theoretical groundwork and practical mechanism designs that can significantly lower user fees in blockchains, with implications for decentralized resource sharing and auction design under strategic behavior.

Abstract

Blockchains deploy Transaction Fee Mechanisms (TFMs) to determine which user transactions to include in blocks and determine their payments (i.e., transaction fees). Increasing demand and scarce block resources have led to high user transaction fees. As these blockchains are a public resource, it may be preferable to reduce these transaction fees. To this end, we introduce Transaction Fee Redistribution Mechanisms (TFRMs) -- redistributing VCG payments collected from such TFM as rebates to minimize transaction fees. Classic redistribution mechanisms (RMs) achieve this while ensuring Allocative Efficiency (AE) and User Incentive Compatibility (UIC). Our first result shows the non-triviality of applying RM in TFMs. More concretely, we prove that it is impossible to reduce transaction fees when (i) transactions that are not confirmed do not receive rebates and (ii) the miner can strategically manipulate the mechanism. Driven by this, we propose \emph{Robust} TFRM (\textsf{R-TFRM}): a mechanism that compromises on an honest miner's individual rationality to guarantee strictly positive rebates to the users. We then introduce \emph{robust} and \emph{rational} TFRM (\textsf{R}$^2$\textsf{-TFRM}) that uses trusted on-chain randomness that additionally guarantees miner's individual rationality (in expectation) and strictly positive rebates. Our results show that TFRMs provide a promising new direction for reducing transaction fees in public blockchains.

Designing Redistribution Mechanisms for Reducing Transaction Fees in Blockchains

TL;DR

This paper addresses the problem of high transaction fees in public blockchains by introducing Transaction Fee Redistribution Mechanisms (TFRMs) that redistribute VCG surplus as rebates to reduce user payments while preserving allocative efficiency and incentive compatibility. It reveals fundamental impossibilities when miners can manipulate the system and when rebates are restricted to confirmed transactions, motivating robust approaches. The authors propose Robust TFRM (R-TFRM), which guarantees strictly positive redistribution at the cost of miner IR, and R^2-TFRM, which adds trusted on-chain randomness to ensure positive rebates in expectation while preserving IR for miners in expectation. Overall, the work lays a theoretical groundwork and practical mechanism designs that can significantly lower user fees in blockchains, with implications for decentralized resource sharing and auction design under strategic behavior.

Abstract

Blockchains deploy Transaction Fee Mechanisms (TFMs) to determine which user transactions to include in blocks and determine their payments (i.e., transaction fees). Increasing demand and scarce block resources have led to high user transaction fees. As these blockchains are a public resource, it may be preferable to reduce these transaction fees. To this end, we introduce Transaction Fee Redistribution Mechanisms (TFRMs) -- redistributing VCG payments collected from such TFM as rebates to minimize transaction fees. Classic redistribution mechanisms (RMs) achieve this while ensuring Allocative Efficiency (AE) and User Incentive Compatibility (UIC). Our first result shows the non-triviality of applying RM in TFMs. More concretely, we prove that it is impossible to reduce transaction fees when (i) transactions that are not confirmed do not receive rebates and (ii) the miner can strategically manipulate the mechanism. Driven by this, we propose \emph{Robust} TFRM (\textsf{R-TFRM}): a mechanism that compromises on an honest miner's individual rationality to guarantee strictly positive rebates to the users. We then introduce \emph{robust} and \emph{rational} TFRM (\textsf{R}\textsf{-TFRM}) that uses trusted on-chain randomness that additionally guarantees miner's individual rationality (in expectation) and strictly positive rebates. Our results show that TFRMs provide a promising new direction for reducing transaction fees in public blockchains.
Paper Structure (51 sections, 13 theorems, 14 equations, 5 figures, 1 table)

This paper contains 51 sections, 13 theorems, 14 equations, 5 figures, 1 table.

Table of Contents

  1. Introduction
  2. Transaction Fee Mechanism (TFM).
  3. TFRM: Challenges.
  4. Our Contributions.
  5. Related Work
  6. Transaction Fee Mechanism (TFM).
  7. Redistribution Mechanism (RM).
  8. Preliminaries
  9. Transaction Fee Mechanism (TFM) Model.
  10. Utility Model.
  11. TFMs: Desirable Properties
  12. Individual Rationality (IR).
  13. User Incentive Compatibility (UIC).
  14. Other Properties.
  15. Groves' Redistribution Mechanism (RM)
  16. ...and 36 more sections

Key Result

Theorem 1

In an RM, any deterministic, anonymous rebate function $g(\cdot)$ is UIC iff the rebate for user $i$ is defined as $r_{i} := g(b_{1},b_{2},\ldots,b_{i-1},b_{i+1},\ldots,b_{n}),~ \forall i \in [n],$ where $b_{1} \geq b_{2} \geq \ldots \geq b_{n}.$

Figures (5)

  • Figure 1: Overview of the framework for Transaction Fee Redistribution Mechanisms (TFRMs).
  • Figure 2: Transaction Fees Redistribution Mechanism (TFRM): General Framework.
  • Figure 3: R-TFRM: Linear Program for Rebate Function with Approx-IR$_m$
  • Figure 4: R-TFRM: Linear Program Independent of the bid vector $\mathbf{b}$
  • Figure 5: R$^2$-TFRM: Robust and Rational Transaction Fees Redistribution Mechanism.

Theorems & Definitions (33)

  • Definition 1: Transaction Fee Mechanism (TFM) chung2021foundationsroughgarden21.
  • Example 1: Second-price TFM (SPA) chung2021foundationsroughgarden21.
  • Definition 2: (Ex-post) Individual Rationality (IR)
  • Definition 3: User Incentive Compatibility (UIC) roughgarden21
  • Definition 4: Restricted UIC (RUIC)
  • Definition 5: Allocative Efficiency (AE)
  • Definition 6: Weakly/Strongly Budget Balance (WBB/SBB)
  • Definition 7: Anonymity
  • Theorem 1: Gujar11
  • Definition 8: Linear Rebate Function Guo07
  • ...and 23 more