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Transaction Fee Mechanism Design for the Ethereum Blockchain: An Economic Analysis of EIP-1559

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  • Tim Roughgarden

Abstract

EIP-1559 is a proposal to make several tightly coupled additions to Ethereum's transaction fee mechanism, including variable-size blocks and a burned base fee that rises and falls with demand. This report assesses the game-theoretic strengths and weaknesses of the proposal and explores some alternative designs.

Suggested Citation

  • Tim Roughgarden, 2020. "Transaction Fee Mechanism Design for the Ethereum Blockchain: An Economic Analysis of EIP-1559," Papers 2012.00854, arXiv.org.
    • Handle: RePEc:arx:papers:2012.00854
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    References listed on IDEAS

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    1. Eric Budish, 2018. "The Economic Limits of Bitcoin and the Blockchain," NBER Working Papers 24717, National Bureau of Economic Research, Inc.
    2. Nicolas Houy, 2014. "The economics of Bitcoin transaction fees," Working Papers halshs-00951358, HAL.
    3. Mohammad Akbarpour & Shengwu Li, 2020. "Credible Auctions: A Trilemma," Econometrica, Econometric Society, vol. 88(2), pages 425-467, March.
    4. Matheus V. X. Ferreira & S. Matthew Weinberg, 2020. "Credible, Truthful, and Two-Round (Optimal) Auctions via Cryptographic Commitments," Papers 2004.01598, arXiv.org, revised May 2020.
    5. Coppinger, Vicki M & Smith, Vernon L & Titus, Jon A, 1980. "Incentives and Behavior in English, Dutch and Sealed-Bid Auctions," Economic Inquiry, Western Economic Association International, vol. 18(1), pages 1-22, January.
    6. repec:cup:cbooks:9781316779309 is not listed on IDEAS
    7. Roughgarden,Tim, 2016. "Twenty Lectures on Algorithmic Game Theory," Cambridge Books, Cambridge University Press, number 9781316624791, November.
    8. Roughgarden,Tim, 2016. "Twenty Lectures on Algorithmic Game Theory," Cambridge Books, Cambridge University Press, number 9781107172661, November.
    9. Easley, David & O'Hara, Maureen & Basu, Soumya, 2019. "From mining to markets: The evolution of bitcoin transaction fees," Journal of Financial Economics, Elsevier, vol. 134(1), pages 91-109.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Andrea Canidio & Vincent Danos, 2024. "Commitment Against Front-Running Attacks," Management Science, INFORMS, vol. 70(7), pages 4429-4440, July.
    2. Sam M. Werner & Daniel Perez & Lewis Gudgeon & Ariah Klages-Mundt & Dominik Harz & William J. Knottenbelt, 2021. "SoK: Decentralized Finance (DeFi)," Papers 2101.08778, arXiv.org, revised Sep 2022.
    3. Bertucci, Louis, 2024. "Bitcoin Ordinals: Determinants and impact on total transaction fees," Research in International Business and Finance, Elsevier, vol. 70(PA).
    4. Yulin Liu & Yuxuan Lu & Kartik Nayak & Fan Zhang & Luyao Zhang & Yinhong Zhao, 2022. "Empirical Analysis of EIP-1559: Transaction Fees, Waiting Time, and Consensus Security," Papers 2201.05574, arXiv.org, revised Apr 2023.
    5. Michele Fabi, 2024. "Latency Tradeoffs in Blockchain Capacity Management," Working Papers 2024-10, Center for Research in Economics and Statistics.
    6. Jain, Archana & Jain, Chinmay & Krystyniak, Karolina, 2023. "Blockchain transaction fee and Ethereum Merge," Finance Research Letters, Elsevier, vol. 58(PC).
    7. Aggelos Kiayias & Philip Lazos & Jan Christoph Schlegel, 2023. "Would Friedman Burn your Tokens?," Papers 2306.17025, arXiv.org.
    8. Hao Chung & Elaine Shi, 2021. "Foundations of Transaction Fee Mechanism Design," Papers 2111.03151, arXiv.org, revised Nov 2022.
    9. Andrea Canidio, 2023. "Auctions with Tokens: Monetary Policy as a Mechanism Design Choice," Papers 2301.13794, arXiv.org, revised Aug 2023.
    10. Wenpin Tang & David D. Yao, 2023. "Transaction fee mechanism for Proof-of-Stake protocol," Papers 2308.13881, arXiv.org, revised Aug 2023.
    11. Bernhard Kasberger, 2022. "An Equilibrium Model of the First-Price Auction with Strategic Uncertainty: Theory and Empirics," Papers 2202.07517, arXiv.org, revised Mar 2022.
    12. Luyao Zhang & Fan Zhang, 2023. "Understand Waiting Time in Transaction Fee Mechanism: An Interdisciplinary Perspective," Papers 2305.02552, arXiv.org.
    13. Hao Chung & Tim Roughgarden & Elaine Shi, 2024. "Collusion-Resilience in Transaction Fee Mechanism Design," Papers 2402.09321, arXiv.org, revised Jun 2024.
    14. Jason Milionis & Dean Hirsch & Andy Arditi & Pranav Garimidi, 2022. "A Framework for Single-Item NFT Auction Mechanism Design," Papers 2209.11293, arXiv.org.
    15. Yotam Gafni & Aviv Yaish, 2022. "Discrete & Bayesian Transaction Fee Mechanisms," Papers 2210.07793, arXiv.org, revised May 2024.
    16. Pedro Braga & Georgios Chionas & Piotr Krysta & Stefanos Leonardos & Georgios Piliouras & Carmine Ventre, 2024. "MEV Sharing with Dynamic Extraction Rates," Papers 2402.15849, arXiv.org, revised Sep 2024.
    17. Kensuke Ito, 2024. "Cryptoeconomics and Tokenomics as Economics: A Survey with Opinions," Papers 2407.15715, arXiv.org.

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