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StableFees: A Predictable Fee Market for Cryptocurrencies

Author

Listed:
  • Soumya Basu

    (Department of Computer Science, Cornell University, Ithaca, New York 14850)

  • David Easley

    (Departments of Information Science and Economics, Cornell University, Ithaca, New York 14850)

  • Maureen O’Hara

    (College of Business, Cornell University, Ithaca, New York 14850)

  • Emin Gün Sirer

    (Ava Labs, New York, New York 10036)

Abstract

Blockchain-based cryptocurrencies must solve the problem of assigning priorities to competing transactions. The most widely used mechanism involves each transaction offering a fee to be paid once the transaction is processed, but this discriminatory price mechanism fails to yield stable equilibria with predictable prices. We propose an alternate fee setting mechanism, StableFees, that is based on uniform price auctions. We prove that our proposed protocol is free from manipulation by users and miners as the number of users and miners increases and show empirically that gains from manipulation are small in practice. We show that StableFees reduces the fees paid by users and reduces the variance of fee income to miners. Data from December 2017 show that, if implemented, StableFees could have saved Bitcoin users $272,528,000 USD in transaction fees while reducing the variance of miner’s fee income, on average, by a factor of 7.4. We argue that our fee protocol also has important social welfare and environmental benefits.

Suggested Citation

  • Soumya Basu & David Easley & Maureen O’Hara & Emin Gün Sirer, 2023. "StableFees: A Predictable Fee Market for Cryptocurrencies," Management Science, INFORMS, vol. 69(11), pages 6508-6524, November.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:11:p:6508-6524
    DOI: 10.1287/mnsc.2023.4735
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