Briefing
This paper rigorously addresses the critical problem of designing effective transaction fee mechanisms (TFMs) in blockchain environments where block producers actively extract value, known as Maximal Extractable Value (MEV). It establishes fundamental impossibility results, demonstrating that traditional TFMs cannot simultaneously achieve optimal user experience and align block producer incentives under MEV. The authors introduce a refined model that decouples block production roles, then propose the Searcher-Augmented Knapsack Auction (SAKA) mechanism, which guarantees incentive compatibility for all participants and approximates optimal social welfare. This work provides a robust theoretical framework for building more resilient and economically sound blockchain architectures.
Context
Prior to this research, much of the academic literature on transaction fee mechanisms (TFMs) operated under the simplifying assumption of “passive” block producers. These models posited that block producers solely maximized transaction fee revenue, overlooking the substantial private value derived from application-layer interactions, or Maximal Extractable Value (MEV). This prevailing theoretical limitation created a disconnect between academic models and the complex economic realities of live blockchain systems, where MEV significantly influences block producer behavior and can undermine TFM stability and fairness.
Analysis
The core idea involves recognizing and formalizing the “active” nature of block producers, who possess private valuations for blocks beyond explicit transaction fees. This necessitates a more nuanced mechanism design approach. The paper first establishes that no non-trivial TFM can achieve both dominant-strategy incentive-compatibility (DSIC) for users and incentive-compatibility for block producers (BPIC) when block producers are active. To circumvent these limitations, the authors introduce a refined model incorporating specialized “searchers” who identify MEV opportunities and “proposers” who act as passive block assemblers.
Within this framework, the Searcher-Augmented Knapsack Auction (SAKA) mechanism is proposed. SAKA is a deterministic TFM that uses bid-to-size ratios, analogous to a knapsack problem approximation, to select transactions and bundles. It is designed to be DSIC for both users and searchers, BPIC for the passive proposer, and sybil-proof, achieving a constant-factor approximation of optimal social welfare.
Parameters
- Core Concept → Active Block Producers
- Key Mechanism → Searcher-Augmented Knapsack Auction (SAKA)
- Impossibility Theorems → DSIC, BPIC, Non-Triviality; DSIC, BPIC, Non-Trivial Welfare
- Welfare Approximation → (1-γ)/2 Factor
- Authors → Maryam Bahrani, Pranav Garimidi, Tim Roughgarden
- Publication Date → March 5, 2024
- Related Protocols → EIP-1559, mev-geth
- Incentive Properties → DSIC, BPIC, Sybil-Proof
- Problem Domain → Maximal Extractable Value (MEV)
- Academic Field → Algorithmic Game Theory
Outlook
This research opens significant avenues for the next generation of blockchain transaction fee mechanisms. The formal impossibility results compel designers to consider mechanisms that either sacrifice perfect user experience, enforce block producer behavior through cryptographic means, or, as explored here, expand the design space by integrating MEV-aware roles like searchers. Future work will likely focus on Bayesian analyses of revenue-welfare trade-offs in such mechanisms and exploring how these theoretical insights can be practically implemented in evolving blockchain architectures to enhance fairness and efficiency. This framework provides a robust foundation for building more economically sound and predictable decentralized systems.
Signal Acquired from → timroughgarden.org
