Sealed-bid Auctions on Blockchain with Timed Commitment Outsourcing

TL;DR

This paper proposes a blockchain-based sealed-bid auction protocol utilizing timed commitment outsourcing, introducing an aggregation scheme and a two-sided market to optimize security, incentives, and revenue.

Contribution

It introduces a novel aggregation scheme for timed commitments and a two-sided market mechanism, addressing cost-bearing issues and enhancing auction security and incentives.

Findings

The protocol satisfies DSIC for bidders and BIC for solvers.

It achieves optimal revenue for the auctioneer within a large class of mechanisms.

No mechanism can do better while satisfying DSIC and IR for all parties.

Abstract

Sealed-bid auctions play a crucial role in blockchain ecosystems. Previous works introduced viable blockchain sealed-bid auction protocols, leveraging timed commitments for bid encryption. However, a crucial challenge remains unresolved in these works: Who should bear the cost of decrypting these timed commitments? This work introduces a timed commitment outsourcing market as a solution to the aforementioned challenge. We first introduce an aggregation scheme for timed commitments, which combines all bidders' timed commitments into one while ensuring security and correctness and allowing a varying number of bidders. Next, we remodel the utility of auctioneers and timed commitment solvers, developing a new timed commitment competition mechanism and combining it with the sealed-bid auction to form a two-sided market. The protocol includes bid commitment collection, timed commitment solving, and payment. Through game-theoretical analysis, we prove that our protocol satisfies Dominant Strategy Incentive Compatibility (DSIC) for bidders, Bayesian Incentive Compatibility (BIC) for solvers, and achieves optimal revenue for the auctioneer among a large class of mechanisms. Finally, we prove that no mechanism can achieve positive expected revenue for the auctioneer while satisfying DSIC and Individual Rationality (IR) for both bidders and solvers.