Beyond Winner-Take-All Procurement Auctions

TL;DR

This paper introduces new procurement auction mechanisms that balance cost efficiency with decentralization, addressing issues like concentration and Sybil attacks in blockchain resource procurement.

Contribution

It designs a DSIC mechanism with a tunable parameter to interpolate between winner-take-all and uniform allocations, and proposes two alternative mechanisms to improve robustness and simplicity.

Findings

The DSIC mechanism minimizes social cost with a tunable parameter $\alpha$.

A Tullock contest-based mechanism achieves Sybil-proof procurement.

A proportional payment mechanism is ex-post safe and simpler to implement.

Abstract

Blockchain protocols often seek to procure computationally challenging work from a decentralized set of participants. While there are simple procurement auctions that result in the minimal cost of acquisition and maximal efficiency, they also lead to concentration in the provider set due to the winner-take-all market structure. We design and analyze single-good procurement auctions that balance social-cost minimization (at the extreme, a winner-take-all auction) with decentralization (at the extreme, a uniform allocation). We first give a dominant-strategy incentive-compatible (DSIC) mechanism explicitly designed to implement non-winner-take-all allocations. Our allocation rule uniquely solves an optimization with respect to a modified social-cost metric that penalizes large, single-player concentrations and is parameterized with a curvature value, $\alpha$, with $\alpha \rightarrow 0$ implementing the uniform allocation and $\alpha \rightarrow \infty$ implementing the winner-take-all allocation. We further quantify the loss in social cost of this mechanism as a function of $\alpha$. We then propose two alternative mechanisms, each addressing a limitation of the DSIC mechanism, namely a lack of Sybil-resistance and a complex payment rule. First, we examine a variation of Tullock contests to achieve a non-winner-take-all Sybil-proof procurement mechanism. Second, we consider a mechanism with the same allocation rule as the DSIC mechanism but with an alternative payment rule in which producers are simply paid proportionally to their bids. This provides a much simpler payment rule which, while not DSIC, still results in the mechanism being ex-post ``safe'' (where there exists a bidding strategy that is guaranteed to result in non-negative utility) for participating bidders. For both non-DSIC mechanisms, we characterize the equilibrium allocations and prove price of anarchy bounds.