Dynamic Pricing for Non-fungible Resources: Designing Multidimensional Blockchain Fee Markets

TL;DR

This paper proposes a principled, dynamic pricing mechanism for multi-dimensional, non-fungible resources in blockchain fee markets, improving scalability and incentivization by aligning network and user incentives.

Contribution

It introduces a novel method to design multi-resource fee markets that dynamically adjust prices based on demand and a loss function, enhancing network efficiency.

Findings

Provides a decomposition-based pricing mechanism for multiple resources.

Aligns incentives of users, miners, and network designers.

Improves scalability and resistance to denial-of-service attacks.

Abstract

Public blockchains implement a fee mechanism to allocate scarce computational resources across competing transactions. Most existing fee market designs utilize a joint, fungible unit of account (e.g., gas in Ethereum) to price otherwise non-fungible resources such as bandwidth, computation, and storage, by hardcoding their relative prices. Fixing the relative price of each resource in this way inhibits granular price discovery, limiting scalability and opening up the possibility of denial-of-service attacks. As a result, many prominent networks such as Ethereum and Solana have proposed multi-dimensional fee markets. In this paper, we provide a principled way to design fee markets that efficiently price multiple non-fungible resources. Starting from a loss function specified by the network designer, we show how to compute dynamic prices that align the network's incentives (to minimize the loss) with those of the users and miners (to maximize their welfare), even as demand for these resources changes. Our pricing mechanism follows from a natural decomposition of the network designer's problem into two parts that are related to each other via the resource prices. These results can be used to efficiently set fees in order to improve network performance.