On the Welfare of EIP-1559 with Patient Bidders

TL;DR

This paper analyzes the EIP-1559 transaction fee mechanism in Ethereum under the assumption of patient bidders, showing it achieves near-optimal welfare with mild resource augmentation, unlike prior models assuming impatient bidders.

Contribution

It introduces a welfare analysis of EIP-1559 with patient bidders, demonstrating near-optimal outcomes under mild resource augmentation, extending prior work focused on impatient bidders.

Findings

EIP-1559 achieves near-optimal welfare with patient bidders.

Mild resource augmentation suffices for optimal scheduling.

Generalizations and lower bounds are established for the mechanism.

Abstract

The ``EIP-1599 algorithm'' is used by the Ethereum blockchain to assemble transactions into blocks. While prior work has studied it under the assumption that bidders are ``impatient'', we analyze it under the assumption that bidders are ``patient'', which better corresponds to the fact that unscheduled transactions remain in the mempool and can be scheduled at a later time. We show that with ``patient'' bidders, this algorithm produces schedules of near-optimal welfare, provided it is given a mild resource augmentation (that does not increase with the time horizon). We prove some generalizations of the basic theorem, establish lower bounds that rule out several candidate improvements and extensions, and propose several questions for future work.