Transaction Fee Mechanism Design for Leaderless Blockchain Protocols

TL;DR

This paper studies transaction fee mechanisms in leaderless blockchains, proposing a game-theoretic model, a new property called BPIC, and a first-price auction mechanism that incentivizes honest behavior and guarantees a significant fraction of optimal welfare.

Contribution

It introduces a multi-stage game model, the BPIC property, and the FPA-EQ mechanism, advancing the design of incentive-compatible fee mechanisms for leaderless blockchains.

Findings

FPA-EQ mechanism is strongly BPIC and guarantees at least 63.2% welfare.

No DSIC mechanism can be strongly BPIC with non-trivial welfare guarantees.

Qualitative limitations on mechanism design for leaderless blockchains.

Abstract

We initiate the study of transaction fee mechanism design for blockchain protocols in which multiple block producers contribute to the production of each block. Our contributions include: - We propose an extensive-form (multi-stage) game model to reason about the game theory of multi-proposer transaction fee mechanisms. - We define the strongly BPIC property to capture the idea that all block producers should be motivated to behave as intended: for every user bid profile, following the intended allocation rule is a Nash equilibrium for block producers that Pareto dominates all other Nash equilibria. - We propose the first-price auction with equal sharing (FPA-EQ) mechanism as an attractive solution to the multi-proposer transaction fee mechanism design problem. We prove that the mechanism is strongly BPIC and guarantees at least a 63.2% fraction of the maximum-possible expected welfare at equilibrium. - We prove that the compromises made by the FPA-EQ mechanism are qualitatively necessary: no strongly BPIC mechanism with non-trivial welfare guarantees can be DSIC, and no strongly BPIC mechanism can guarantee optimal welfare at equilibrium.