Characterizing Off-Chain Influence Proof Transaction Fee Mechanisms

2025-12-02

AI Summary

This paper investigates the design of transaction fee mechanisms (TFMs), focusing on characterizing mechanisms satisfying *Off-chain Incentive-Proofness* (OffCIP) and *On-chain Conciseness* (OnCS). Using mechanism design and multi-item auction theory, the authors first introduce and prove that all OffCIP mechanisms must satisfy a *virtual-value-based burning identity*, revealing a fundamental linkage between allocation and burning rules. They fully characterize the structure of deterministic and randomized OffCIP+OnCS mechanisms: deterministic mechanisms exist only under infinite supply and prior-dependent settings, whereas randomized mechanisms admit broader constructions—even under finite supply. Crucially, they show that in non-cryptographic environments, satisfying both OffCIP and OnCS requires tunable burning. This work establishes the first formal, verifiable theoretical foundation for incentive compatibility in blockchain fee mechanisms.

Technology Category

• Multiagent Systems: Mechanism Design
• Game Theory and Economic Paradigms: Mechanism Design
• Data Mining & Knowledge Management: Representing, Reasoning, and Using Provenance, Trust

Application Category

• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Security and Privacy: Blockchains and distributed ledgers
• Web Mining and Content Analysis: Web data provenance, reliability, and authenticity

Abstract

Roughgarden (2020) initiates the study of Transaction Fee Mechanisms (TFMs), and posits that the on-chain game of a ``good''TFM should be on-chain simple (OnCS), i.e., incentive compatible for users and the miner. Recent work of Ganesh, Thomas and Weinberg (2024) posits that they should additionally be Off-Chain Influence Proof (OffCIP), which means that the miner cannot achieve any additional revenue by separately conducting an off-chain auction to determine on-chain inclusion. They observe that a cryptographic second-price auction satisfies both properties, but leave open the question of whether other mechanisms (e.g, non-cryptographic) satisfy these properties. In this paper, we characterize OffCIP TFMs: They are those satisfying a burn identity relating the burn rule to the allocation rule. In particular, we show that auction is OffCIP if and only if its (induced direct-revelation) allocation rule $ar{X}(cdot)$ and burn rule $ar{B}(cdot)$ (both of which take as input users'values $v_1, dots, v_n$) are truthful when viewing $ig(ar{X}(cdot), ar{B}(cdot)ig)$ as the allocation and pricing rule of a multi-item auction for a single additive buyer with values $ig(varphi(v_1),ldots, varphi(v_n)ig)$ equal to the users'virtual values. Building on this burn identity, we characterize deterministic OffCIP and OnCS TFMs that do not use cryptography: They are posted-price mechanisms with specially-tuned burns. As a corollary, we show that such TFMs can only exist with infinite supply and prior-dependence. However, we show that for randomized TFMs, there are additional OnCS and OffCIP auctions that do not use cryptography (even when there is finite supply, under prior-dependence with a bounded prior distribution). Holistically, our results show that while OffCIP is a fairly stringent requirement, families of OffCIP mechanisms can be found for a variety of settings.

Problem

• Characterize Off-Chain Influence Proof transaction fee mechanisms.
• Determine non-cryptographic mechanisms satisfying OnCS and OffCIP properties.
• Explore existence of such mechanisms under finite supply and prior-dependence.

Innovation

• Characterize OffCIP TFMs via burn identity linking allocation and burn rules
• Identify deterministic non-cryptographic OffCIP TFMs as posted-price mechanisms with tuned burns
• Show randomized non-cryptographic OffCIP TFMs exist even under finite supply conditions