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Decentralized payment clearing using blockchain and optimal bidding

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  • Amini, Hamed
  • Bichuch, Maxim
  • Feinstein, Zachary

Abstract

In this paper, we construct a decentralized clearing mechanism which endogenously and automatically provides a claims resolution procedure. This mechanism can be used to clear a network of obligations through blockchain. In particular, we investigate default contagion in a network of smart contracts cleared through blockchain. In so doing, we provide an algorithm which constructs the blockchain so as to guarantee the payments can be verified and the miners earn a fee. We, additionally, consider the special case in which the blocks have unbounded capacity to provide a simple equilibrium clearing condition for the terminal net worths; existence and uniqueness are proven for this system. Finally, we consider the optimal bidding strategies for each firm in the network so that all firms are utility maximizers with respect to their terminal wealths. We show that a pure strategy Nash equilibrium need not exist, and then look for mixed Nash equilibrium bidding strategies. The implications of these strategies, and more broadly blockchain, on systemic risk are considered.

Suggested Citation

  • Amini, Hamed & Bichuch, Maxim & Feinstein, Zachary, 2023. "Decentralized payment clearing using blockchain and optimal bidding," European Journal of Operational Research, Elsevier, vol. 309(1), pages 409-420.
    • Handle: RePEc:eee:ejores:v:309:y:2023:i:1:p:409-420
    DOI: 10.1016/j.ejor.2022.12.024
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    Cited by:

    1. Ketelaars, Martijn, 2024. "Clearing in financial networks and dynamic investment under uncertainty," Other publications TiSEM 94768fb9-fd72-405d-a330-6, Tilburg University, School of Economics and Management.
    2. Martijn W. Ketelaars & Peter Borm, 2024. "On the unification of centralized and decentralized clearing mechanisms in financial networks," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 99(3), pages 205-231, June.
    3. Wen Jiayu & Zehao Wang, 2024. "RETRACTED ARTICLE: Economic integration through renewable energy and digital currency in RCEP," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-16, April.

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