Foundations of Transaction Fee Mechanism Design


Friday, April 22, 2022, 1:00pm to 2:30pm



Elaine Shi will be presenting at the EconCS seminar meeting this Friday, 4/22, at 1 pm ET. The seminar will be held Zoom only, accessible at the usual link here. Hope to see you there :).

Title: Foundations of Transaction Fee Mechanism Design

Abstract: Space in a blockchain is a scarce resource. Cryptocurrencies today use auctions to decide which transactions get confirmed in the block. Intriguingly, classical auctions fail in such a decentralized environment, since even the auctioneer can be a strategic player. For example, the second-price auction is a golden standard in classical mechanism design. It fails, however, in the blockchain environment since the miner can easily inject a bid that is epsilon smaller than the k-th price where k is the block size. Moreover, the miner and users can also collude through the smart contract mechanisms available in modern cryptocurrencies.

I will talk about a new foundation for mechanism design in a decentralized environment. I will prove an impossibility result which rules out the existence of a dream transaction fee mechanism that incentivizes honest behavior for the user, the miner, and a miner-user coalition at the same time. I will then argue why the prior modeling choices are too draconian, and how we can overcome this lower bound by capturing hidden costs pertaining to certain deviations.

Bio: Elaine Shi is an Associate Professor at Carnegie Mellon University. Her research interests include cryptography, algorithms, and foundations of blockchains. Prior to CMU, she taught at the University of Maryland and Cornell University. She is a recipient of the Packard Fellowship, the Sloan Fellowship, the ONR YIP Award, the NSA best scientific cybersecurity paper award, and various other best paper awards.