Babel Fees via Limited Liabilities

TL;DR

This paper introduces a mechanism called Babel Fees that allows transaction fees on Ethereum to be paid using custom ERC-20 currencies instead of Ether, enabling more flexible and efficient handling of transaction costs.

Contribution

It proposes formal ledger rules and a novel fee payment mechanism that supports paying transaction fees in custom currencies, enhancing Ethereum's flexibility.

Findings

Formal ledger rules for liabilities and Babel Fees

A solution for clients to determine fee payments

An optimization approach for block producers to maximize profits

Abstract

Custom currencies (ERC-20) on Ethereum are wildly popular, but they are second class to the primary currency Ether. Custom currencies are more complex and more expensive to handle than the primary currency as their accounting is not natively performed by the underlying ledger, but instead in user-defined contract code. Furthermore, and quite importantly, transaction fees can only be paid in Ether. In this paper, we focus on being able to pay transaction fees in custom currencies. We achieve this by way of a mechanism permitting short term liabilities to pay transaction fees in conjunction with offers of custom currencies to compensate for those liabilities. This enables block producers to accept custom currencies in exchange for settling liabilities of transactions that they process. We present formal ledger rules to handle liabilities together with the concept of babel fees to pay transaction fees in custom currencies. We also discuss how clients can determine what fees they have to pay, and we present a solution to the knapsack problem variant that block producers have to solve in the presence of babel fees to optimise their profits.