A Game-Theoretic Analysis of Cross-Ledger Swaps with Packetized Payments

TL;DR

This paper introduces a game-theoretic model for cross-ledger packetized payments, analyzing failure rates and proposing collateral deposits to prevent malicious behavior, with insights on dynamic deposit adjustments based on asset volatility.

Contribution

It provides a novel game-theoretic analysis of packetized payments, highlighting the importance of collateral and dynamic deposit strategies to ensure protocol security.

Findings

Packetized payments are prone to incompleteness without disciplinary mechanisms.

Collateral deposits can deter malicious agents effectively.

Deposit amounts should adapt to asset price volatility.

Abstract

We propose a game-theoretic framework to study the outcomes of packetized payments, a cross-ledger transaction protocol, with strategic and possibly malicious agents. We derive the transaction failure rate and demonstrate that without disciplinary mechanisms, packetized payments are likely to be incomplete. Our analysis suggests that collateral deposits can prevent malicious agents from taking advantage of the protocol. We further infer that the deposit amount should depend on the underlying asset price volatility or that it should be dynamically adjusted as the price changes.