A Framework of Transaction Packaging in High-throughput Blockchains

TL;DR

This paper presents a game-theoretic framework for optimizing transaction packaging in high-throughput decentralized blockchains, addressing coordination issues caused by network latency and partial observability.

Contribution

It introduces a strategic coordination mechanism with algorithms to compute equilibrium outcomes, improving efficiency and stability in decentralized transaction processing.

Findings

Decentralized platforms can achieve efficient market outcomes.

The proposed mechanism can set a base fee per gas endogenously.

Algorithms provide bounds on computational complexity of equilibria.

Abstract

We develop a model of coordination and allocation of decentralized multi-sided markets, in which our theoretical analysis is promisingly optimizing the decentralized transaction packaging process at high-throughput blockchains or Web 3.0 platforms. In contrast to the stylized centralized platform, the decentralized platform is powered by blockchain technology, which allows for secure and transparent Peer-to-Peer transactions among users. Traditional single-chain-based blockchains suffer from the well-known blockchain trilemma. Beyond the single-chain-based scheme, decentralized high-throughput blockchains adopt parallel protocols to reconcile the blockchain trilemma, implementing any tasking and desired allocation. However, unneglectable network latency may induce partial observability, resulting in incoordination and misallocation issues for the decentralized transaction packaging process at the current high-throughput blockchain protocols. To address this problem, we consider a strategic coordination mechanism for the decentralized transaction packaging process by using a game-theoretic approach. Under a tractable two-period model, we find a Bayesian Nash equilibrium of the miner's strategic transaction packaging under partial observability. Along with novel algorithms for computing equilibrium payoffs, we show that the decentralized platform can achieve an efficient and stable market outcome. The model also highlights that the proposed mechanism can endogenously offer a base fee per gas without any restructuration of the initial blockchain transaction fee mechanism. The theoretical results that underlie the algorithms also imply bounds on the computational complexity of equilibrium payoffs.