Briefing
Existing Transaction Fee Mechanisms (TFMs), including the widely adopted EIP-1559 model, are fundamentally vulnerable to off-chain influence, where a revenue-maximizing block builder can coerce users into paying hidden fees by threatening transaction censorship, a covert form of Maximal Extractable Value (MEV) extraction. The research addresses this by formalizing a new security desideratum, Off-Chain Influence Proofness , and demonstrating that a modified Cryptographic Second-Price Auction (C2PA) , augmented to allow on-chain miner-set reserve prices, can satisfy this critical property. This finding forces a re-evaluation of TFM design, establishing that eliminating off-chain influence requires a provably unavoidable trade-off with other previously desired properties, fundamentally shifting the focus of blockchain economic security toward verifiable on-chain strategy.
Context
The prevailing academic challenge in TFM design centered on achieving simplicity for users and miners alongside resistance to on-chain collusion, with EIP-1559 often considered the gold standard in a simplified model. This prior work, however, failed to rigorously model the block builder’s ability to exert influence outside the protocol’s fixed rules. This oversight left a critical, unaddressed vector for MEV extraction, where a Bayesian revenue-maximizing miner could strictly increase profits by persuasively threatening to censor bids that did not include an off-chain tip, thus maintaining an opaque and coercive secondary auction market.
Analysis
The core idea introduces a model where the block builder is an active, revenue-maximizing agent operating in a Bayesian setting who can influence user behavior off-chain. The proposed Cryptographic Second-Price Auction (C2PA) mechanism uses cryptographic primitives (abstracting Multi-Party Computation or Verifiable Delay Functions) to process encrypted user bids, ensuring the miner cannot see the bid values before inclusion. The crucial innovation is allowing the miner to set a reserve price on-chain as an explicit input to the mechanism. This explicit, transparent on-chain strategy allows the miner to maximize revenue honestly within the protocol, thereby removing the incentive to run a separate, hidden, and coercive off-chain auction, thus achieving the new property of off-chain influence proofness.
Parameters
- Off-Chain Influence Proofness → The new formal property stating that a miner cannot achieve additional revenue by running a separate, off-chain auction.
- Impossibility Result → A formal proof showing that no mechanism can simultaneously satisfy all prior TFM properties and the new Off-Chain Influence Proofness.
- Cryptographic Second-Price Auction (C2PA) → The specific mechanism shown to satisfy the new property when augmented with miner-set reserves.
Outlook
The research establishes a new, higher bar for TFM security, forcing future mechanism design to prioritize resistance to off-chain influence over the absolute maximization of other properties like miner simplicity. This theoretical framework will guide the development of next-generation, MEV-resistant block-building protocols, particularly those leveraging cryptographic primitives like MPC and Verifiable Delay Functions (VDFs), to explicitly incorporate miner strategy as an on-chain input, leading to more transparent and equitable transaction ordering in the next three to five years.
Verdict
This work provides the foundational theoretical model and impossibility result necessary to formally combat the most sophisticated forms of covert MEV extraction, fundamentally advancing the economic security of decentralized systems.
