DROPS

Document

DOI: 10.4230/LIPIcs.AFT.2025.20

Selfish Mining Under General Stochastic Rewards

Authors: Maryam Bahrani, Michael Neuder, and S. Matthew Weinberg

Published in: LIPIcs, Volume 354, 7th Conference on Advances in Financial Technologies (AFT 2025)

Abstract

Selfish miners selectively withhold blocks to earn disproportionately high revenue. The vast majority of the selfish mining literature focuses exclusively on block rewards. [Carlsten et al., 2016] is a notable exception, observing that similar strategic behavior is profitable in a zero-block-reward regime (the endgame for Bitcoin’s quadrennial halving schedule) if miners are compensated with transaction fees alone. Neither model fully captures miner incentives today. The block reward remains 3.125 BTC, yet some blocks yield significantly higher revenue. For example, congestion during the launch of the Babylon protocol in August 2024 caused transaction fees to spike from 0.14 BTC to 9.52 BTC, a 68× increase in fees within two blocks. Our results are both practical and theoretical. Of practical interest, we study selfish mining profitability under a combined reward function that more accurately models miner incentives. This analysis enables us to make quantitative claims about protocol risk (e.g., the mining power at which a selfish strategy becomes profitable is reduced by 22% when optimizing over the combined reward function versus block rewards alone) and qualitative observations (e.g., a miner considering both block rewards and transaction fees will mine more or less aggressively respectively than if they cared about either alone). These practical results follow from our novel model and methodology, which constitute our theoretical contributions. We model general, time-accruing stochastic rewards in the Nakamoto Consensus Game, which requires explicit treatment of difficult adjustment and randomness; we characterize reward function structure through a set of properties (e.g., that rewards accrue only as a function of time since the parent block). We present a new methodology to analytically calculate expected selfish miner rewards under a broad class of stochastic reward functions and validate our method numerically by comparing it with the existing literature and simulating the combined reward sources directly.

Cite as

Maryam Bahrani, Michael Neuder, and S. Matthew Weinberg. Selfish Mining Under General Stochastic Rewards. In 7th Conference on Advances in Financial Technologies (AFT 2025). Leibniz International Proceedings in Informatics (LIPIcs), Volume 354, pp. 20:1-20:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2025)

Copy BibTex To Clipboard

@InProceedings{bahrani_et_al:LIPIcs.AFT.2025.20,
  author =	{Bahrani, Maryam and Neuder, Michael and Weinberg, S. Matthew},
  title =	{{Selfish Mining Under General Stochastic Rewards}},
  booktitle =	{7th Conference on Advances in Financial Technologies (AFT 2025)},
  pages =	{20:1--20:23},
  series =	{Leibniz International Proceedings in Informatics (LIPIcs)},
  ISBN =	{978-3-95977-400-0},
  ISSN =	{1868-8969},
  year =	{2025},
  volume =	{354},
  editor =	{Avarikioti, Zeta and Christin, Nicolas},
  publisher =	{Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2025.20},
  URN =		{urn:nbn:de:0030-drops-247396},
  doi =		{10.4230/LIPIcs.AFT.2025.20},
  annote =	{Keywords: Proof-of-Work, Selfish Mining, MEV}
}

Document

DOI: 10.4230/LIPIcs.AFT.2024.20

Optimizing Exit Queues for Proof-Of-Stake Blockchains: A Mechanism Design Approach

Authors: Michael Neuder, Mallesh Pai, and Max Resnick

Published in: LIPIcs, Volume 316, 6th Conference on Advances in Financial Technologies (AFT 2024)

Abstract

Byzantine fault-tolerant consensus protocols have provable safety and liveness properties for static validator sets. In practice, however, the validator set changes over time, potentially eroding the protocol’s security guarantees. For example, systems with accountable safety may lose some of that accountability over time as adversarial validators exit. As a result, protocols must rate limit entry and exit so that the set changes slowly enough to ensure security. Here, the system designer faces a fundamental trade-off. The harder it is to exit the system, the less attractive staking becomes; alternatively, the easier it is to exit the system, the less secure the protocol will be. This paper provides the first systematic study of exit queues for Proof-of-Stake blockchains. Given a collection of validator-set consistency constraints imposed by the protocol, the social planner’s goal is to provide a constrained-optimal mechanism that minimizes disutility for the participants. We introduce the MINSLACK mechanism, a dynamic capacity first-come-first-served queue in which the amount of stake that can exit in a period depends on the number of previous exits and the consistency constraints. We show that MINSLACK is optimal when stakers equally value the processing of their withdrawal. When stakers values are heterogeneous, the optimal mechanism resembles a priority queue with dynamic capacity. However, this mechanism must reserve exit capacity for the future in case a staker with a much higher need for liquidity arrives. We conclude with a survey of known consistency constraints and highlight the diversity of existing exit mechanisms.

Cite as

Michael Neuder, Mallesh Pai, and Max Resnick. Optimizing Exit Queues for Proof-Of-Stake Blockchains: A Mechanism Design Approach. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 20:1-20:22, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)

Copy BibTex To Clipboard

@InProceedings{neuder_et_al:LIPIcs.AFT.2024.20,
  author =	{Neuder, Michael and Pai, Mallesh and Resnick, Max},
  title =	{{Optimizing Exit Queues for Proof-Of-Stake Blockchains: A Mechanism Design Approach}},
  booktitle =	{6th Conference on Advances in Financial Technologies (AFT 2024)},
  pages =	{20:1--20:22},
  series =	{Leibniz International Proceedings in Informatics (LIPIcs)},
  ISBN =	{978-3-95977-345-4},
  ISSN =	{1868-8969},
  year =	{2024},
  volume =	{316},
  editor =	{B\"{o}hme, Rainer and Kiffer, Lucianna},
  publisher =	{Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.20},
  URN =		{urn:nbn:de:0030-drops-209564},
  doi =		{10.4230/LIPIcs.AFT.2024.20},
  annote =	{Keywords: Mechanism Design, Market Design, Accountable Safety, Proof-of-Stake, Blockchain}
}

Document

DOI: 10.4230/LIPIcs.AFT.2023.25

Strategic Liquidity Provision in Uniswap V3

Authors: Zhou Fan, Francisco Marmolejo-Cossio, Daniel Moroz, Michael Neuder, Rithvik Rao, and David C. Parkes

Published in: LIPIcs, Volume 282, 5th Conference on Advances in Financial Technologies (AFT 2023)

Abstract

Uniswap v3 is the largest decentralized exchange for digital currencies. A novelty of its design is that it allows a liquidity provider (LP) to allocate liquidity to one or more closed intervals of the price of an asset instead of the full range of possible prices. An LP earns fee rewards proportional to the amount of its liquidity allocation when prices move in this interval. This induces the problem of strategic liquidity provision: smaller intervals result in higher concentration of liquidity and correspondingly larger fees when the price remains in the interval, but with higher risk as prices may exit the interval leaving the LP with no fee rewards. Although reallocating liquidity to new intervals can mitigate this loss, it comes at a cost, as LPs must expend gas fees to do so. We formalize the dynamic liquidity provision problem and focus on a general class of strategies for which we provide a neural network-based optimization framework for maximizing LP earnings. We model a single LP that faces an exogenous sequence of price changes that arise from arbitrage and non-arbitrage trades in the decentralized exchange. We present experimental results informed by historical price data that demonstrate large improvements in LP earnings over existing allocation strategy baselines. Moreover we provide insight into qualitative differences in optimal LP behaviour in different economic environments.

Cite as

Zhou Fan, Francisco Marmolejo-Cossio, Daniel Moroz, Michael Neuder, Rithvik Rao, and David C. Parkes. Strategic Liquidity Provision in Uniswap V3. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 25:1-25:22, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)

Copy BibTex To Clipboard

@InProceedings{fan_et_al:LIPIcs.AFT.2023.25,
  author =	{Fan, Zhou and Marmolejo-Cossio, Francisco and Moroz, Daniel and Neuder, Michael and Rao, Rithvik and Parkes, David C.},
  title =	{{Strategic Liquidity Provision in Uniswap V3}},
  booktitle =	{5th Conference on Advances in Financial Technologies (AFT 2023)},
  pages =	{25:1--25:22},
  series =	{Leibniz International Proceedings in Informatics (LIPIcs)},
  ISBN =	{978-3-95977-303-4},
  ISSN =	{1868-8969},
  year =	{2023},
  volume =	{282},
  editor =	{Bonneau, Joseph and Weinberg, S. Matthew},
  publisher =	{Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.25},
  URN =		{urn:nbn:de:0030-drops-192144},
  doi =		{10.4230/LIPIcs.AFT.2023.25},
  annote =	{Keywords: blockchain, decentralized finance, Uniswap v3, liquidity provision, stochastic gradient descent}
}

Search Results

Documents authored by Neuder, Michael

Selfish Mining Under General Stochastic Rewards

Abstract

Cite as

Optimizing Exit Queues for Proof-Of-Stake Blockchains: A Mechanism Design Approach

Abstract

Cite as

Strategic Liquidity Provision in Uniswap V3

Abstract

Cite as

Thanks for your feedback!

Could not send message