On the Welfare of EIP-1559 with Patient Bidders with Moshe Babaioff | A16z Crypto Research Series

Why It Matters

The findings show that Ethereum’s fee mechanism can maintain efficient, predictable transaction throughput and social welfare even under adversarial validator behavior, bolstering confidence for users, developers, and investors.

Key Takeaways

• EIP‑1559’s welfare analyzed under patient, non‑impatient bidders in Ethereum.
• Model assumes adversarial validators selecting any maximal‑by‑inclusion set.
• Protocol maintains average block size B despite allowing up to 2B capacity.
• Proof shows slack depends only on parameters, not on block count.
• Welfare guarantees hold even without assuming validator strategic behavior.

Summary

The seminar presented recent research on the welfare properties of Ethereum’s EIP‑1559 fee mechanism when users are patient—meaning their transactions can wait in the mempool without losing value. Moshe Babaioff and co‑authors model a setting where validators are adversarial but must include any transaction that fits, selecting a maximal‑by‑inclusion set, while transaction values per unit are known and fixed.

Key insights include a formal description of the dynamic base‑fee update rule, the allowance for block sizes up to twice the target (C = 2), and a theorem proving that, despite this flexibility, the protocol’s average block size converges to the target B with a bounded slack. The slack depends only on protocol parameters (η, value range L‑H, and C) and not on the number of blocks, ensuring consistent throughput.

The authors emphasize that the analysis treats validators as worst‑case adversaries, yet the mechanism still achieves near‑optimal social welfare. Notable details include the definition of maximal‑by‑inclusion, the price‑adjustment formula using an exponential approximation, and the constant‑slack guarantee derived from telescoping price ratios.

These results suggest that EIP‑1559 can provide robust welfare guarantees without relying on validator incentives or sophisticated scheduling, reinforcing confidence in Ethereum’s fee market stability and informing future protocol upgrades.

Original Description

The “EIP-1599 algorithm'” is used by the Ethereum blockchain to assemble transactions into blocks. While prior work has studied it under the assumption that bidders are “impatient,” Moshe Babaioff (Hebrew University of Jerusalem) analyzes it under the assumption that bidders are “patient,” which better corresponds to the fact that unscheduled transactions remain in the mempool and can be scheduled at a later time. He shows that with patient bidders, this algorithm produces schedules of near-optimal welfare, provided it is given a mild resource augmentation (that does not increase with the time horizon). He proves some generalizations of the basic theorem, establish lower bounds that rule out several candidate improvements and extensions, and propose several questions for future work.

Joint work with Noam Nisan.

Paper: https://arxiv.org/abs/2502.20031

About the presenter

Moshe is an Associate Professor at the School of Computer Science and Engineering of the Hebrew University of Jerusalem. His research focuses on establishing rigorous theoretical foundations of solutions to real-world problems at the intersection of Economics and Computation (EC), using tools and approaches from Computer Science, Game Theory, and Microeconomic Theory.

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