Revisiting the Primitives of Transaction Fee Mechanism Design
Aadityan Ganesh, Clayton Thomas, S. Matthew Weinberg
TL;DR
It is shown that in this model, the cryptographic second price auction satisfies simplicity for users and miners and off-chain influence proof, since it allows any Bayesian miner to maximize their revenue by posting an optimal reserve price.
Abstract
Transaction Fee Mechanism Design studies auctions run by untrusted miners for transaction inclusion in a blockchain. Under previously-considered desiderata, an auction is considered `good' if, informally-speaking, each party (i.e., the miner, the users, and coalitions of both miners and users) has no incentive to deviate from the fixed and pre-determined protocol. In this paper, we propose a novel desideratum for transaction fee mechanisms. We say that a TFM is off-chain influence proof when the miner cannot achieve additional revenue by running a separate auction off-chain. While the previously-highlighted EIP-1559 is the gold-standard according to prior desiderata, we show that it does not satisfy off-chain influence proofness. Intuitively, this holds because a Bayesian revenue-maximizing miner can strictly increase profits by persuasively threatening to censor any bids that do not transfer a tip directly to the miner off-chain. On the other hand, we reconsider the Cryptographic (multi-party computation assisted) Second Price Auction mechanism, which is technically not `simple for miners' according to previous desiderata (since miners may wish to set a reserve by fabricating bids). We show that, in a slightly different model where the miner is allowed to set the reserve directly, this auction satisfies simplicity for users and miners, and off-chain influence proofness. Finally, we prove a strong impossibility result: no mechanism satisfies all previously-considered properties along with off-chain influence proofness, even with unlimited supply, and even after soliciting input from the miner.