Working Paper: NBER ID: w29780
Authors: Joshua S. Gans; Richard T. Holden
Abstract: Blockchain front-running involves multiple agents, other than the legitimate agent, claiming a payment from performing a contract. It arises because of the public nature of blockchain transactions and potential network congestion. This paper notes that disputes over payments are similar to classic ownership disputes (such as King Solomon's dilemma). We propose a simultaneous report mechanism that resolves Solomon's dilemma (using only ordinal preference information) and also eliminates blockchain front-running. In each case, the mechanism relies on threats to remove ownership from all claimants and preferences from the legitimate claimant over allocations to other agents.
Keywords: Blockchain; Frontrunning; Ownership Disputes
JEL Codes: D82; D86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| simultaneous report mechanism (C30) | resolves ownership disputes (H13) |
| simultaneous report mechanism (C30) | eliminates frontrunning (G14) |
| ordinal preferences (C69) | resolves ownership disputes (H13) |
| ordinal preferences (C69) | eliminates frontrunning (G14) |
| removing ownership from all claimants (H13) | prevents fraudulent claims (G22) |
| simultaneous report mechanism (C30) | unique subgame perfect equilibrium outcome (C72) |
| truthful revelation of preferences (D01) | enhances contract safety (D86) |