Deterministic UTXO consolidation under volatile fee regimes

The discourse delves into the nuanced considerations surrounding UTXO consolidation in the realm of cryptocurrency wallets, emphasizing not just fee optimization but also the implications on determinism and correctness during transaction construction. It highlights the dynamic nature of consolidation decisions influenced by the current fee environment, advocating for a strategic approach that takes into account time-dependent policies and compares fee rates against historical baselines. This analysis is critical given that transaction structures may need adaptation based on mempool conditions, underscoring the complexity of executing optimal consolidation strategies.

Two pivotal questions are posed to explore the depth of consolidation’s impact. The first queries at what juncture consolidation logic transcends beyond being merely a policy layer to become integral to the wallet's operational correctness. The second question probes whether deterministic guarantees, such as invariant input ordering, bounded fee regret, and stable change handling, should be enforceable within consolidation workflows. These inquiries aim to dissect whether the consolidation process can and should uphold certain guarantees to mitigate potential risks.

The communication identifies several potential failure modes inherent in the consolidation process, including non-deterministic input selection influenced by varying mempool states, privacy concerns stemming from over-consolidation during transient fee dips, PSBT reproducibility challenges due to inconsistent fee-estimation sources, and issues related to managing dust outputs or change threshold behavior amidst high fee-rate volatility. These failure modes illustrate the complex interplay between consolidation practices and transaction safety and integrity.

Ultimately, the discussion invites reflection on whether UTXO consolidation should be viewed strictly as a matter of wallet user experience or if it encapsulates broader correctness and safety considerations necessitating stronger invariant guarantees. This contemplation serves to broaden the dialogue on how consolidation interacts with fee estimation and PSBT construction, potentially redefining its role and importance in ensuring secure, efficient, and predictable wallet transactions.