Briefing
The research addresses the persistent problem of transaction fee mechanism (TFM) manipulation by defining a new security property, Off-chain Influence Proofness (OIP), which prevents miners from extracting additional revenue through off-chain censorship threats. The foundational breakthrough is a formal impossibility result demonstrating that no TFM can simultaneously satisfy OIP and all previously established incentive-compatibility desiderata, including those met by EIP-1559. The single most important implication is that achieving true fairness and resistance to all forms of miner collusion requires either a trade-off in other desirable properties or the adoption of cryptographically-enforced auction primitives like Multi-Party Computation-assisted Second Price Auctions.
Context
Prior to this work, EIP-1559 was widely considered the state-of-the-art TFM, lauded for achieving Dominant-Strategy Incentive Compatibility (DSIC) for users and Miner-Maximizing Incentive Compatibility (MMIC) against simple deviations. This theoretical success was based on models that did not fully account for the strategic power of a Bayesian revenue-maximizing miner to leverage their block-building power to demand off-chain payments. This oversight created a significant theoretical blind spot in the model of miner-user interaction, allowing for subtle forms of rent-seeking that undermine the mechanism’s intended fairness.
Analysis
The paper introduces Off-chain Influence Proofness (OIP) as a crucial security primitive. OIP is violated when a miner can credibly threaten to censor a user’s transaction unless the user provides an off-chain side payment, a form of rent-seeking not captured by prior models. The core mechanism logic re-examines the Cryptographic Second Price Auction (CSPA), which uses Multi-Party Computation (MPC) to ensure the miner cannot observe bids or unilaterally manipulate the auction outcome.
The analysis shows that a CSPA variant, where the miner sets a reserve price, satisfies OIP and user/miner simplicity. This approach fundamentally differs from EIP-1559’s economic disincentives by relying on cryptographic enforcement of the auction rules to prevent adversarial behavior at the source.
Parameters
- New Desideratum → Off-chain Influence Proofness (OIP) – A security property ensuring miners cannot gain revenue by running off-chain side auctions or threatening censorship.
- Mechanism Type Reconsidered → Cryptographic Second Price Auction (CSPA) – An auction mechanism enforced via Multi-Party Computation (MPC) to hide bids from the miner.
- Impossibility Scope → All previously-considered properties plus OIP – The set of desirable TFM properties that cannot be simultaneously satisfied.
Outlook
The research immediately opens new avenues for cryptoeconomic mechanism design focused on integrating cryptographic primitives with economic incentives. Future work will concentrate on optimizing the CSPA to reduce its computational overhead and exploring new MPC-based designs that can minimize the trade-offs necessitated by the impossibility result. In the next 3-5 years, this foundational shift will likely lead to a new generation of Layer 1 and Layer 2 sequencing protocols that use cryptographic privacy techniques to enforce transaction ordering fairness, directly mitigating the most subtle forms of value extraction.
