Briefing
The established theoretical framework for Transaction Fee Mechanism (TFM) design fails to account for a block producer’s ability to profit by coercing users off-chain through credible censorship threats. This research introduces Off-Chain Influence Proofness (OIP) , a novel economic desideratum that formally captures a mechanism’s resilience against a miner’s ability to extract additional revenue by running a separate, unverified off-chain auction. The analysis proves that the widely-adopted EIP-1559 mechanism is not OIP-proof, demonstrating that a Bayesian revenue-maximizing miner can strictly increase profits by persuasively threatening to censor bids that do not transfer a tip directly to them off-chain. The single most important implication is that a provably secure TFM requires a shift from simple, on-chain mechanisms to complex, cryptographically-assisted designs to enforce the necessary economic constraints and secure the integrity of transaction ordering.
Context
The prevailing academic challenge in transaction fee mechanism design centered on creating incentive-compatible protocols that addressed the basic MEV extraction problem through on-chain transparency. EIP-1559 was considered the gold standard, as its base fee and priority fee structure was widely believed to satisfy all necessary economic desiderata, ensuring fairness and predictability. The theoretical limitation was a failure to formally model the block producer’s persuasive threat to censor bids that do not include a direct, off-chain payment. This oversight permitted an implicit, unverified secondary market for blockspace to exist, fundamentally breaking the mechanism’s intended incentive structure.
Analysis
The core conceptual breakthrough is the introduction of Off-Chain Influence Proofness (OIP) , a security property for transaction mechanisms. A TFM is OIP if the block producer cannot increase their revenue by threatening to censor transactions unless users pay a separate, off-chain fee. The paper formalizes this by modeling a Bayesian revenue-maximizing miner who leverages the credible threat of censorship to force users into a private, off-chain side-deal. The analysis rigorously proves that EIP-1559’s priority fee mechanism is insufficient to counter this threat, as the miner’s threat to censor is profitable.
The research posits that a modified Cryptographic Second Price Auction (CSPA) satisfies OIP. This CSPA differs fundamentally from previous approaches by employing multi-party computation to enforce the auction rules, making the miner unable to unilaterally manipulate the reserve price or censor bids profitably without revealing their malicious action, thereby eliminating the source of off-chain influence.
Parameters
- Off-Chain Influence Proofness (OIP) → The novel economic desideratum that requires a transaction fee mechanism to prevent block producers from increasing revenue by coercing users into off-chain payments via censorship threats.
- EIP-1559 → The established transaction fee mechanism model that is formally proven to be not Off-Chain Influence Proof.
- Cryptographic Second Price Auction (CSPA) → The alternative mechanism, utilizing multi-party computation, that is shown to satisfy the Off-Chain Influence Proofness property.
Outlook
This research re-establishes the necessity of cryptographic mechanisms for achieving robust economic security in decentralized systems. The immediate next phase of research will focus on practical, low-latency implementations of OIP-proof mechanisms, such as efficient multi-party computation (MPC) or zero-knowledge proof systems, to run the necessary cryptographic auctions. In the 3-5 year horizon, this theoretical foundation is poised to unlock a new generation of transaction ordering protocols that formally guarantee fair access and prevent censorship-for-profit, fundamentally reshaping the design of shared sequencers and rollup architectures toward provable fairness.
Verdict
This work introduces a foundational economic security primitive that mandates the integration of cryptographic enforcement into all future transaction fee mechanism designs.
