An Onchain Implementation Of Mining Feerate Futures

An Onchain Implementation Of Mining Feerate Futures

Original Postby harding

Posted on: February 18, 2024 18:08 UTC

Onchain contracts are designed to mitigate the risks associated with relying on trusted third parties by removing counterparty risk.

These contracts offer the advantage of reducing the potential for principal actor corruption, similar to how betting on sports without influencing the athletes themselves would work. This system theoretically prevents the manipulation of outcomes that could be tempted when a trusted intermediary is involved in arbitrating futures contracts for centralized exchanges or when providing data for users of Decentralized Ledger Contracts (DLCs). The usual method involves using fee data from confirmed transactions, which cannot be manipulated by miners to the same extent as other potential data sources.

However, a notable challenge arises due to the fact that miners can choose which transactions to include in their blocks, potentially making a trusted third party seem unreliable by deviating from expected transaction sets. This could occur intentionally or accidentally if significant fees were offered outside of the standard transaction pool. Onchain contracts incentivize miners to align their decision-making with the production of candidate blocks that maximize both fee revenue and future contract revenue. Despite these incentives, there exists a theoretical vulnerability discussed in a contemporary post, highlighting that miners with a large share of the network's total hashrate could strategically forego mining certain transactions. This strategy could benefit them in settling contracts favorably at the cost of not including higher fee transactions in the current block, banking on the probability of being able to mine those transactions in subsequent blocks.

This dynamic suggests that while onchain contracts aim to mitigate trust and corruption issues inherent in traditional systems, they may inadvertently reinforce mining centralization by making large miners more profitable than their smaller counterparts. The exact impact of this theoretical model on mining centralization and its significance remain uncertain, necessitating further analysis and discussion within the community to fully understand and address these concerns.