Mempool Incentive Compatibility

The discussion revolves around a potential vulnerability in transaction pinning, where an adversary could exploit the system by replacing their transaction just before a 12-block deadline with only a minimal fee increase. This tactic would effectively allow them to extend the pinning of their transaction for another set of blocks without significantly increasing the cost, thereby gaming the system.

An alternative solution proposed involves the concept of a "V4-pool", which is described as a small mempool of transactions that are required to enter the top block. By enforcing that any replacement transaction must not only be timely but also qualify for inclusion in the top block, this method aims to mitigate the identified loophole. Specifically, after a transaction has reached its timeout, it would be considered free for relay and eligible for replacement, but with the stipulation that the new transaction cannot simply occupy the bottom ranks of the mempool. This approach seeks to ensure that any transaction aiming to replace a timed-out transaction must contribute a higher fee, thus addressing the issue of minimal fee bumps being used to maintain a transaction's pinning status.