IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2307.01686.html
   My bibliography  Save this paper

Transaction Fee Mechanism Design with Active Block Producers

Author

Listed:
  • Maryam Bahrani
  • Pranav Garimidi
  • Tim Roughgarden

Abstract

The incentive-compatibility properties of blockchain transaction fee mechanisms have been investigated with *passive* block producers that are motivated purely by the net rewards earned at the consensus layer. This paper introduces a model of *active* block producers that have their own private valuations for blocks (representing, for example, additional value derived from the application layer). The block producer surplus in our model can be interpreted as one of the more common colloquial meanings of the term ``MEV.'' The main results of this paper show that transaction fee mechanism design is fundamentally more difficult with active block producers than with passive ones: with active block producers, no non-trivial or approximately welfare-maximizing transaction fee mechanism can be incentive-compatible for both users and block producers. These results can be interpreted as a mathematical justification for the current interest in augmenting transaction fee mechanisms with additional components such as order flow auctions, block producer competition, trusted hardware, or cryptographic techniques.

Suggested Citation

  • Maryam Bahrani & Pranav Garimidi & Tim Roughgarden, 2023. "Transaction Fee Mechanism Design with Active Block Producers," Papers 2307.01686, arXiv.org, revised Oct 2023.
    • Handle: RePEc:arx:papers:2307.01686
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2307.01686
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tim Roughgarden, 2021. "Transaction Fee Mechanism Design," Papers 2106.01340, arXiv.org, revised Dec 2023.
    2. Matheus V. X. Ferreira & David C. Parkes, 2022. "Credible Decentralized Exchange Design via Verifiable Sequencing Rules," Papers 2209.15569, arXiv.org, revised Apr 2023.
    3. Matheus V. X. Ferreira & Daniel J. Moroz & David C. Parkes & Mitchell Stern, 2021. "Dynamic Posted-Price Mechanisms for the Blockchain Transaction Fee Market," Papers 2103.14144, arXiv.org, revised Nov 2021.
    4. Mohammad Akbarpour & Shengwu Li, 2020. "Credible Auctions: A Trilemma," Econometrica, Econometric Society, vol. 88(2), pages 425-467, March.
    5. repec:cup:cbooks:9781316779309 is not listed on IDEAS
    6. Roughgarden,Tim, 2016. "Twenty Lectures on Algorithmic Game Theory," Cambridge Books, Cambridge University Press, number 9781316624791.
    7. Roughgarden,Tim, 2016. "Twenty Lectures on Algorithmic Game Theory," Cambridge Books, Cambridge University Press, number 9781107172661.
    8. Meryem Essaidi & Matheus V. X. Ferreira & S. Matthew Weinberg, 2022. "Credible, Strategyproof, Optimal, and Bounded Expected-Round Single-Item Auctions for all Distributions," Papers 2205.14758, arXiv.org.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tarun Chitra, 2023. "Towards a Theory of Maximal Extractable Value II: Uncertainty," Papers 2309.14201, arXiv.org.
    2. Hao Chung & Tim Roughgarden & Elaine Shi, 2024. "Collusion-Resilience in Transaction Fee Mechanism Design," Papers 2402.09321, arXiv.org.
    3. Yotam Gafni & Aviv Yaish, 2024. "Barriers to Collusion-resistant Transaction Fee Mechanisms," Papers 2402.08564, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Matheus V. X. Ferreira & David C. Parkes, 2022. "Credible Decentralized Exchange Design via Verifiable Sequencing Rules," Papers 2209.15569, arXiv.org, revised Apr 2023.
    2. Andrew Komo & Scott Duke Kominers & Tim Roughgarden, 2024. "Shill-Proof Auctions," Papers 2404.00475, arXiv.org.
    3. Meryem Essaidi & Matheus V. X. Ferreira & S. Matthew Weinberg, 2022. "Credible, Strategyproof, Optimal, and Bounded Expected-Round Single-Item Auctions for all Distributions," Papers 2205.14758, arXiv.org.
    4. Tim Roughgarden, 2020. "Transaction Fee Mechanism Design for the Ethereum Blockchain: An Economic Analysis of EIP-1559," Papers 2012.00854, arXiv.org.
    5. Tom Johnston & Michael Savery & Alex Scott & Bassel Tarbush, 2023. "Game Connectivity and Adaptive Dynamics," Papers 2309.10609, arXiv.org, revised Nov 2023.
    6. Konstantinos Georgalos & Indrajit Ray & Sonali SenGupta, 2020. "Nash versus coarse correlation," Experimental Economics, Springer;Economic Science Association, vol. 23(4), pages 1178-1204, December.
    7. Tommaso Denti & Doron Ravid, 2023. "Robust Predictions in Games with Rational Inattention," Papers 2306.09964, arXiv.org.
    8. Emerson Melo, 2021. "Learning in Random Utility Models Via Online Decision Problems," Papers 2112.10993, arXiv.org, revised Aug 2022.
    9. Luyao Zhang & Fan Zhang, 2023. "Understand Waiting Time in Transaction Fee Mechanism: An Interdisciplinary Perspective," Papers 2305.02552, arXiv.org.
    10. Ben Amiet & Andrea Collevecchio & Marco Scarsini & Ziwen Zhong, 2021. "Pure Nash Equilibria and Best-Response Dynamics in Random Games," Mathematics of Operations Research, INFORMS, vol. 46(4), pages 1552-1572, November.
    11. Tim Roughgarden, 2018. "Complexity Theory, Game Theory, and Economics: The Barbados Lectures," Papers 1801.00734, arXiv.org, revised Feb 2020.
    12. Berliant, Marcus, 2017. "Commuting and internet traffic congestion," MPRA Paper 77378, University Library of Munich, Germany.
    13. Matheus V. X. Ferreira & Ye Lin Sally Hahn & S. Matthew Weinberg & Catherine Yu, 2022. "Optimal Strategic Mining Against Cryptographic Self-Selection in Proof-of-Stake," Papers 2207.07996, arXiv.org.
    14. Joshua S. Gans & Richard Holden, 2022. "Mechanism Design Approaches to Blockchain Consensus," Papers 2206.10065, arXiv.org.
    15. Austin Knies & Jorge Lorca & Emerson Melo, 2020. "A Recursive Logit Model with Choice Aversion and Its Application to Transportation Networks," Papers 2010.02398, arXiv.org, revised Oct 2021.
    16. Shunta Akiyama & Mitsuaki Obara & Yasushi Kawase, 2022. "Optimal design of lottery with cumulative prospect theory," Papers 2209.00822, arXiv.org.
    17. Guillermo Angeris & Tarun Chitra & Theo Diamandis & Kshitij Kulkarni, 2023. "The Specter (and Spectra) of Miner Extractable Value," Papers 2310.07865, arXiv.org, revised Oct 2023.
    18. Peyman Khezr & Vijay Mohan & Lionel Page, 2024. "Strategic Bidding in Knapsack Auctions," Papers 2403.07928, arXiv.org, revised Apr 2024.
    19. Campbell, Michael, 2020. "Speculative and hedging interaction model in oil and U.S. dollar markets—Long-term investor dynamics and phases," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 540(C).
    20. Carlos Carrion & Zenan Wang & Harikesh Nair & Xianghong Luo & Yulin Lei & Xiliang Lin & Wenlong Chen & Qiyu Hu & Changping Peng & Yongjun Bao & Weipeng Yan, 2021. "Blending Advertising with Organic Content in E-Commerce: A Virtual Bids Optimization Approach," Papers 2105.13556, arXiv.org.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2307.01686. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.