Characterizing Off-Chain Influence-Proof Fee Mechanisms via a Burn Identity → Research

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Briefing

The research addresses the vulnerability of blockchain transaction fee mechanisms (TFMs) to Off-Chain Influence (OffC-I), where block producers secretly auction transaction inclusion to extract additional Maximal Extractable Value (MEV), subverting the on-chain protocol’s integrity. The foundational breakthrough is the characterization of all Off-Chain Influence-Proof (OffC-IP) TFMs in the plaintext model, proving that this desirable economic security property is mathematically equivalent to satisfying a specific burn identity that precisely links the TFM’s allocation rule to its burn rule. This establishes a simple, non-cryptographic necessary and sufficient condition for designing transaction ordering mechanisms that are provably immune to external influence, fundamentally securing the economic layer of decentralized systems.

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Context

The prevailing challenge in blockchain economics centered on designing transaction fee mechanisms that are resilient to manipulation by rational block producers. While solutions like cryptographic second-price auctions were known to achieve Off-Chain Influence-Proofness, the theoretical limitation was the lack of a general, non-cryptographic characterization. This left a gap in mechanism design, requiring complex cryptographic primitives for a purely economic problem and hindering the development of simpler, more transparent protocols that could guarantee fairness and security through economic incentives alone.

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Analysis

The core idea introduces a burn identity as the defining feature of a secure TFM. Conceptually, the identity states that a TFM is OffC-IP if and only if the total amount burned by the protocol is precisely determined by the set of transactions that are ultimately included in the block (the allocation rule). This means the miner’s ability to profit from an off-chain deal is nullified because any deviation from the on-chain rule would either violate the burn identity or fail to capture additional revenue, as the burn rule is a function of the inclusion rule, creating an internal economic constraint that makes the on-chain TFM strategy-proof against external side-auctions.

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Parameters

Core Property → Off-Chain Influence-Proof (OffC-IP) – The mechanism’s resistance to a miner gaining extra revenue by running a separate, private, off-chain auction.
Defining Equivalence → Burn Identity – The mathematical condition linking the TFM’s allocation rule (inclusion) to its burn rule (fee destruction).
Model Scope → Plaintext Model – The theoretical setting where user bids are unencrypted and visible to the block producer.

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Outlook

This characterization shifts the focus of fair transaction ordering research from complex cryptographic primitives back to foundational mechanism design. The finding unlocks new avenues for protocol engineers to design simpler, economically robust fee markets by directly implementing the burn identity. In the next 3-5 years, this principle could lead to a new generation of Layer 1 and Layer 2 transaction ordering protocols that achieve provable MEV mitigation through pure economic incentives and transparent rules, reducing reliance on complex trust assumptions.

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Verdict

This research establishes a foundational economic theorem, providing a non-cryptographic necessary and sufficient condition for securing transaction ordering against adversarial off-chain influence.

Mechanism design, Transaction fee mechanism, Off-chain influence proof, Maximal extractable value, MEV mitigation, Burn identity, Economic security, Plaintext model, Auction theory, Protocol design, Transaction ordering, Decentralized finance, Game theory, Auction mechanism, Miner revenue, Block space Signal Acquired from → arxiv.org