TL;DR
This proposal is to fund Nethermind to deliver comprehensive analyses of two high-priority topics relating to (based) preconfirmations. These topics emerged as high-priority from extended conversations between Nethermind, Lido and Chainbound. Those topics are:
- The Economic Viability of Preconfirmations
- Securing Preconfirmations
It is imperative that preconfirmations are properly understood before they see mass adoption. Our deliverables will improve on this understanding, with particular focus on the revenue and risks that preconfirmations bring.
The project will take 3 months, and its cost - 100,000 USDC - will be covered by a LEGO grant.
Proposer
Conor McMenamin on behalf of Nethermind.
Preliminaries
- For ease of presentation, we split the proposal into 2 sections, 1 per topic.
- Unless otherwise specified, “preconfirmations” encapsulates both execution and inclusion preconfirmations.
- The deliverables will be contained in one article per topic, either as a direct forum post, or summarized and linked in a forum post.
- When we mention the transaction supply chain, we refer to the stages involved in creating, sending, delivering, proposing, confirming and finalizing a transaction. This diagram from describes some of the different stages:
Motivation
Preconfirmations have the potential to significantly impact the Ethereum ecosystem. In terms of relative impact, there is little greater than the impact on block proposal. Whether preconfirmations are provided directly by proposers, or outsourced to third parties, they will bring many direct and indirect effects to the proposer role. This proposal will investigate two of the main questions that proposers will need answered before they can make an informed decision about whether or not they the proposers should offer preconfirmations, and which preconfirmations they should offer. These questions are based on the two topics of:
- The Economic Viability of Preconfirmations
- Securing Preconfirmations
1. The Economic Viability of Preconfirmations
Proposal Description
We seek to answer the question of “Are preconfirmation protocols expected to be economically viable for proposers to run?”. To do this, we will tackle the following two sub-questions
- What is the expected difference in revenue between running preconfirmation protocols vs normal block building?
- What are the expected revenues and costs that preconfirmations incur on each stage of the transaction supply chain?
Deliverable
- Provide a thorough analysis of the economic viability of preconfirmations, with a conclusion on how likely (under what conditions and assumptions) are preconfirmations to be economically viable.
- Outline clear steps protocols and transaction supply chain actors should take to:
- Improve preconfirmation revenue.
- Reduce implicit and explicit costs and risks.
Timeline & Personnel
3 months.
1.5 months: Conor McMenamin, Protocol Researcher.
1.5 months: Finn Casey-Fierro, DeFi Research Analyst.
This proposal has two phases:
- An initial data collection and modelling phase where we identify and model all predictive variables with respect to block value. The key focus of this analysis will be identifying predictive variables that are both dependent and independent of slot time. With this, we will be able to provide insight into how preconfirmation revenue differs to normal block building revenue. Following this, we will model preconfirmation costs vs normal block-building costs, and use these comparisons of revenue and cost to deduce the economic viability of preconfirmations.
- A follow-up phase where we take the learnings from phase 1 and consider how revenues and costs are affected by specific preconfirmation protocol designs and features. With this theoretical comparison, we will identify the protocol designs that are most economically viable, and those that are not. Together with our findings from phase 1, this will provide a clear signal to preconfirmation protocols regarding which protocol features should be included, and which should be avoided.
2. Securing preconfirmations
This proposal is focused on the security and strength of preconfirmation guarantees. Preconfirmations of transactions are only useful to a user if there is some crypto-socio-economic guarantee that the preconfirmed transaction will eventually be confirmed/finalized.
Proposal Description
- What are the minimum & ideal economic security requirements needed to secure preconfirmations? How these requirements differ at each stage in the transaction supply chain.
- Can some of the economic requirements be relaxed through socio-cryptographic guarantees:
- Reputation/repeated-game behaviour offer viable alternatives to 100% directly-collateralized economic guarantees. This is in-line with the thinking behind the Preconfirmation Sauna.
- Do certain preconfirmation protocol designs require less collateral than others?
- Restaking protocols:
- What is the role of restaking protocols in preconfirmations?
- Which restaking protocols/protocol features are appropriate/necessary for preconfirmations?
- Are there any dangers to using restaking protocols to secure preconfirmations?
Deliverable
- Outline the key protocol designs for providing direct economic security to preconfirmations, e.g. direct collateral provision on-/off-chain, the various restaking protocols. Discuss the tradeoffs of each.
- Motivate and specify economic security requirements for each of the entities in the transaction confirmation supply chain.
- Provide alternatives to purely restaked security, including detailed discussions on the tradeoffs, e.g. economic efficiency, adoption, centralization, trust, fragmentation, etc. Alternatives include reputation-based and proof-of-authority protocols, as well as some involvement of trusted execution environments.
Timeline & Personnel
3 months.
1.5 months: Lin Oshitani, Protocol Researcher.
1.5 months: Elena Petreska, Protocol Researcher.
Funding and Budget
The total requested amount for this proposal is 100,000 USDC. This will be paid in three installments:
- 34,000 USDC upfront.
- 33,000 USDC on completion of Deliverable 1.
- 33,000 USDC on completion of Deliverable 2.
Upon the submission of each deliverable, the LEGO council will decide whether the provided deliverable meets the agreed requirements and, if that is the case, proceed with the payment.