MEV Necessitates New Blockchain Transaction Fee Mechanism Designs ∞ Research

A close-up view reveals a complex, translucent blue structure adorned with intricate silver circuitry and scattered white particles. Metallic, gear-like components are visible within and behind this structure, alongside a distinct circular metallic element on its surface

The image displays a detailed, close-up perspective of a complex mechanical or digital system, characterized by bright blue and metallic silver components intricately connected by numerous wires. Hexagonal and circular modules with layered designs and concentric patterns are prominent, set against a blurred, dark grey background

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.

A close-up view presents an intricate mechanical component, featuring polished silver and grey metallic elements, partially submerged in a luminous blue, viscous liquid topped with light blue foam. The liquid forms a radial, web-like pattern around a central circular bearing, integrating seamlessly with the metallic structure's spokes

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.

A close-up view reveals a sophisticated metallic circular mechanism partially encased by a dynamic, bubbling blue fluid. The fluid appears to flow and churn with numerous small, white bubbles

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.

A distinct blue, geometrically structured component, featuring polished metallic elements, is intricately embraced by a light blue, porous, foam-like material. This detailed composition highlights a central element supported by an enveloping, highly granular structure

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

A close-up view presents a futuristic, white, hexagonal mechanical structure with integrated black accents, surrounding a central circular component. Within this intricate framework, numerous translucent blue cubic elements are visible, appearing as if flowing or contained, suggesting dynamic interaction and data transfer

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.

This foundational research decisively reframes blockchain transaction fee mechanism design, providing both critical impossibility proofs and a novel, practical solution for MEV-aware environments.

Signal Acquired from ∞ timroughgarden.org