Rollup Transaction Fee Mechanisms

• Rollup Transaction Fee Mechanisms are protocols that allocate fees in rollup systems by applying principles like MMIC and OCA-proofness to manage transaction inclusion.
• They integrate variable block sizes, dynamic base fee adjustments, and burning strategies to align operator incentives and resist collusion during demand surges.
• These mechanisms simplify user bidding while balancing throughput, system security, and economic trade-offs inherent in blockchain rollup implementations.

Rollup Transaction Fee Mechanisms (TFMs) allocate, price, and manage transaction inclusion in rollup-based blockchain systems, mediating between user demands, operator incentives, and system security. Rollups, which aggregate many off-chain transactions into on-chain batches, rely on specialized TFMs to balance throughput, incentive compatibility, and resistance to manipulation—while incorporating unique features such as variable block sizes, base fee adjustment, and novel payment/burning strategies. Recent research leverages advanced mechanism design, incentive theory, and empirical paper to define, analyze, and refine the trade-offs and principles underlying robust rollup TFMs.

1. Mechanism Design Foundations and Incentive Structures

Rollup TFMs are grounded in mechanism design, adapted for blockchains’ idiosyncrasies. Two central properties—myopic miner incentive compatibility (MMIC) and off-chain agreement-proofness (OCA-proofness)—emerge as foundational:

• Myopic Miner Incentive Compatibility (MMIC): Ensures that a revenue-maximizing (myopic) rollup operator achieves maximal payoff by strictly following the allocation rule, rather than deviating or inserting fake transactions. MMIC is implied when the payment rule is separable (depends only on each transaction's bid and on-chain state) and the operator greedily maximizes revenue, as formalized in Theorem 5.2 and Corollary 5.3.
• OCA-Proofness: Guarantees robustness to off-chain collusion—no coalition of users and the rollup operator can jointly deviate and improve their total surplus over what the on-chain mechanism provides. OCA-proofness is formalized by requiring the allocation/payments to maximize the joint utility (sum of operator profits and user net value) among all feasible on-chain outcomes (Definition 5.10, Proposition 5.11).

Both properties address key issues:

• Operator allocation power (potential for dictatorial control)
• Zero-cost fake transactions
• Need to compute fees based strictly on on-chain bids/history
• Prevalence of off-chain collusion channels

Traditional dominant-strategy incentive compatibility (DSIC) for users—truthful bidding independent of others—is "almost" satisfied when parameters like the base fee are well-aligned with demand, but can break during demand spikes.

2. EIP-1559 and Tipless Mechanisms: Design and Rollup Application

The EIP-1559 mechanism is a paradigmatic rollup TFM for Ethereum and has influenced layer-2 design:

• Variable-Size Batching and Base Fee: Rather than a fixed batch size, there is a target size $C$, but blocks may expand up to $2C$. The base fee $r$ adjusts via a history-dependent rule, e.g.,

$$r_{k+1} = r_k \cdot \left(1 + \frac{1}{8}\cdot\frac{\text{GasUsed}_k-\text{GasTarget}}{\text{GasTarget}}\right)$$

• Base Fee Burning and Dual Fee Structure: Transactions specify a "fee cap" (max payment willing) and an optional "tip" to the operator. Payments are $p_t = b_t - r$; the base fee component $r$ is burned, while the tip goes to the operator.
• Posted-Price Structure and Simplicity: The mechanism aims to create "obvious" optimal strategies for users (bidding min$\{r + p, v_t\}$), lowering the cognitive burden and minimizing strategic manipulation.

The tipless mechanism further streamlines bidding by setting a fixed tip $d$ (e.g., equal to marginal operator cost), so inclusion simply requires a bid above $r + d$. This achieves strong DSIC and MMIC under normal conditions, though it loses some flexibility and OCA-proofness during demand anomalies.

For rollups, these properties ensure:

• Operator compliance with the intended allocation
• User bidding is efficient and less error-prone
• Fees are robust to simple miner-user collusion (as long as base fee is well-calibrated)
• Economic incentives align under both steady and bursty demand

3. Analysis of MMIC, OCA-Proofness, DSIC, and Their Boundaries

The theoretical assessment in (Roughgarden, 2021) demonstrates:

• MMIC via Separable Rules: If the per-transaction payment is independent of others' bids and based only on its own bid and the on-chain fee state (e.g., the base fee), the mechanism naturally induces MMIC (Theorem 5.2). This ensures that the operator's best immediate action is to follow the specified rolling allocation and payment rule.
• DSIC Holds "Usually": For EIP-1559-style mechanisms, DSIC is satisfied whenever the base fee is high enough relative to demand and provided users do not "overbid" (Theorem 5.7). When the base fee lags behind rapid demand spikes ("misalignment"), DSIC breaks down as users begin strategic bidding to force inclusion.
• OCA-Proofness When History-Dependent: If the base fee depends solely on past blocks and not on the operator's current choices, joint utility is maximized on-chain, resisting side payments or collusion that would otherwise increase total surplus (Proposition 5.11, Corollary 5.14).

Trade-offs: During demand surges that outpace fee adjustment, both DSIC and OCA-proofness may fail temporarily—allowing for strategic manipulation or bid-racing, though MMIC and some robustness are retained. In tipless mechanisms, rigidity exposes vulnerability to collusion or underpricing unless demand and base fees are strictly well-aligned.

4. Practical Rollup TFM Implementation Considerations

The translation of these mechanism designs into practical rollup TFMs entails several operational insights:

• Stable and Simple Bidding: Reducing user complexity—by using posted-price (base fee) plus fixed/optional tips—smooths the bidding landscape, improves predictability, and increases usage by minimizing the need for strategic fee estimation.
• Operator Robustness: MMIC guarantees that the rollup sequencer/operator cannot gain by injecting fake transactions or deliberately manipulating batch selection. This is important for trust-minimized or permissionless rollups.
• Collusion Resistance: OCA-proofness is vital when rollup participants can organize side channels, perform off-chain settlements, or attempt to coordinate fee rebates. History-only base fees and surplus-maximizing rules help minimize avenues for profitable collusion.
• Spikes and Base Fee Tuning: The system's ability to handle unexpected, sharp demand increases depends on timely and effective fee updates. If the base fee lags, exploit opportunities for strategic bidding or collusion open. Dynamic calibration is therefore essential for practical deployments.

Economic impact: Burning (or redistributing) base fees alters rollup tokenomics, impacting long-term value accrual, miner/operator incentives, and user cost predictability.

5. Alternative Designs and Comparative Properties

The paper identifies the tipless mechanism as a meaningful alternative—simpler in bidding, DSIC and MMIC under stable conditions, but less adaptive to sudden demand shocks. Variable tips (as in EIP-1559) confer resilience under conditions where rapid adjustment is necessary.

Comparison table (for properties under typical, well-tuned operation):

Mechanism	MMIC	DSIC	OCA-proofness	Simplicity	Spike Robustness
EIP-1559	Yes	Usually	Yes	Moderate	Moderate
Tipless	Yes	Yes	Usually	High	Lower

*Note: "Usually" indicates vulnerabilities during demand surges or anomalous base fee alignment.

In rollup settings, these tradeoffs drive the selection of fee adjustment rules, whether to permit user customization of tips, and whether to introduce burning or "pay-it-forward" policies for long-term economic health.

6. Broader Implications and Blueprint for Rollup Fee Markets

The integration of MMIC, DSIC (where achievable), and OCA-proofness underpins robust rollup fee market design. By leveraging posted-price or auction-based fee computation, history-dependent (not operator-modifiable) reserve price adjustments, and explicit burning of base fees, rollup designers achieve:

• Incentive alignment for both users and operators, even in adversarial conditions
• Simple, nearly-strategyproof user bidding, promoting broader adoption and less mispricing
• Limited scope for both individual and collective manipulation via off-chain agreements
• Enhanced predictability and user experience notwithstanding occasional market stress

The analysis in (Roughgarden, 2021) forms the basis for implementing practical, efficient, and manipulation-resistant transaction fee markets in rollup systems, and establishes foundational principles for extending mechanisms to future decentralized, high-throughput blockchain applications.