A fee-bumping model

Summary:

The bitcoin-dev mailing list is currently discussing fee-bumping strategies, which are crucial for the security of many protocols built on Bitcoin. The discussion focuses on improving Revault's fee-bumping policies and strategies. The delegation process of spending policies by network monitors (watchtowers) is being studied to introduce malleability in the Cancel transaction. The proposal is to sponsor transactions instead of using CPFP for fee-bumping, but managing a fee-bumping UTxO pool is a massive burden. The discussion also includes questions about when to fee-bump and whether a fee-bumping strategy should depend upon the rate of incoming transactions or how close one is to their timelock expiry.Moreover, the design of off-chain contracts fee-bumping strategies requires careful consideration of miner-harvesting attacks. Privacy could be used to make such attacks impractical. The discussion covers various aspects of fee-bumping strategies, including game theory considerations, fractional reserve models, and anticipating the moves of the crowd of bitcoin users. The use of distributed monitors, fee-bumping "shared cache" variations, and cryptographic mechanisms for block insurance markets are also discussed. An article discusses the problem of ensuring confirmation of a Cancel transaction for any delegated vault in a configured number of blocks while minimizing overpayments and the UTxO set footprint. It suggests the use of presigned transactions to enforce contracts on-chain and the need to bet on future feerate. Additionally, it talks about how much funds a watchtower needs and the layout of the UTxO pool. The article also covers bumping and re-bumping of fees and the most effective way to do so.Furthermore, the Revault protocol presents a problem when enforcing off-chain contracts on Bitcoin using timelocks. Specifically, there is a risk of funds being locked if the fee market spikes and transactions cannot be confirmed in time. The author proposes several solutions to this problem, including increasing the number of participants, decreasing the timelock duration, and implementing a fee-bumping mechanism. The author also discusses the trade-offs involved in each solution and provides a detailed analysis of the historical fee estimates data to inform decision-making.Finally, the need for more discussions on this problem is emphasized to help future protocol designers and start a discussion around what everyone's doing for existing ones. The code used for the study can be found on GitHub. An insurance market may be needed to mitigate the risks involved in enforcing off-chain contracts onchain.

Updated on: 2023-06-15T03:05:09.682027+00:00