Briefing
The foundational problem of transaction fee mechanism (TFM) design is the inherent conflict arising from “active block producers” who can extract Maximal Extractable Value (MEV), leading to impossibility results where no simple, approximately welfare-maximizing mechanism can be incentive-compatible for both users and producers. This research introduces the SAKA mechanism , a deterministic and sybil-proof TFM that achieves Dominant-Strategy Incentive-Compatibility (DSIC) for users, searchers, and the block producer by explicitly modeling the role of searchers as an auction intermediary. The core implication is that by formally incorporating the MEV supply chain into the protocol’s design, it is possible to construct a mechanism that provides strong game-theoretic guarantees for all participants, paving the way for fairer and more robust decentralized economic architectures.
Context
Prior to this work, the design of transaction fee mechanisms was constrained by impossibility results, particularly in models featuring active block producers who possess private valuations for transactions, often interpreted as MEV. Traditional mechanisms, including variants of the first-price auction and even Ethereum’s EIP-1559, struggle to simultaneously satisfy three key properties ∞ Dominant-Strategy Incentive-Compatibility (DSIC) for users, incentive-compatibility for block producers (BPIC), and high social welfare. The challenge was proving a mechanism could exist that encourages all parties ∞ users, searchers, and block producers ∞ to bid and act truthfully while maximizing the overall value captured by the system.
Analysis
The SAKA mechanism fundamentally reframes the problem by recognizing and formalizing the “searcher” role as a critical component of the TFM. The mechanism operates in two conceptual layers ∞ first, it runs a first-price auction among the searchers interested in a specific transaction bundle. The winning bid from this searcher auction serves as a verifiable, on-chain estimate of the Maximal Extractable Value (MEV) associated with that transaction.
This MEV estimate is then used by the TFM to calculate the final price charged to the user, effectively allowing the protocol to internalize the MEV. This strategic pricing allows the SAKA mechanism to recover the DSIC property for users, ensuring they bid their true value, while simultaneously ensuring the block producer is incentivized to follow the protocol’s allocation rule (BPIC), thereby circumventing the established impossibility theorems.
Parameters
- Incentive Compatibility ∞ DSIC for users and searchers, and BPIC for block producers. This is the first deterministic mechanism to achieve this tripartite guarantee.
- Welfare Guarantee ∞ Guarantees social welfare is at least (1 – γ)/2 times the maximum-possible welfare.
- Maximum Transaction Fraction (γ) ∞ The maximum fraction of a block’s capacity consumed by a single transaction or bundle, which is typically 2% or less in current blockchain protocols.
Outlook
This theoretical breakthrough opens a new research avenue focused on mechanism design that explicitly incorporates and leverages the economic reality of MEV, rather than solely attempting to mitigate it. In the next three to five years, this framework is poised to influence the design of next-generation decentralized sequencers and rollup architectures, potentially leading to the deployment of protocol-native auction systems that are provably fair and efficient. Future work will focus on extending the SAKA mechanism’s welfare guarantee closer to 100% and exploring its integration with cryptographic primitives like threshold encryption to further enhance privacy and front-running resistance.
