Fraud Proof Incentives

The system design ensures rational economic actors are incentivized to perform their roles correctly:

• Sequencers are incentivized to post correct batches to avoid losing their bond.
• Verifiers/Watchers are incentivized to monitor and challenge fraud to claim slashing rewards.
• Users are economically secure knowing fraudulent state can be reverted.

The system is secured by making the cost of attempting fraud prohibitively high. An attacker must:

1. Post a substantial bond.
2. Hope no honest watcher detects and challenges the fraud within the challenge period.
3. Risk the entire bond for a potential gain. The economic security scales with the size of the required bond and the number of active, honest watchers.

A coordination problem where the reward for submitting a fraud proof is fixed (e.g., a slice of the slashed bond), but the cost of verification is borne individually. This can lead to free-riding, where watchers assume others will submit the proof. Solutions include reward splitting among all challengers or designated verifiers with special incentives.

The core incentive is a bond (or stake) posted by actors who submit fraud proofs. If a challenge is proven correct, the malicious sequencer's bond is slashed (confiscated) and awarded to the challenger. This creates a direct financial reward for honest verification and a severe penalty for fraud.

This is the critical period (typically 7 days) during which state updates can be challenged. All incentives are structured around this window.

• Sequencer Risk: Assets cannot be considered fully settled until the window closes.
• Watcher Duty: Honest parties must remain vigilant and funded to submit proofs within this timeframe.

Watchers are entities that monitor the chain but are not required to post bonds. A key risk is the free-rider problem: everyone relies on someone else to perform the costly verification. If no one is sufficiently incentivized to run a watcher, fraud may go unchallenged, breaking the system's security model.

Fraud proofs are only possible if the underlying transaction data is available. If a sequencer withholds data (data withholding attack), a state root can be fraudulent but unchallengeable. Therefore, fraud proof incentives are only effective when paired with guaranteed data availability, typically via Ethereum calldata or a data availability committee (DAC).

Optimistic rollups trade off safety (funds are never stolen) for liveness (transactions are fast).

• Safety: Guaranteed only if at least one honest, well-funded challenger is alive during the challenge window.
• Risk: A network outage or coordinated attack on watchers could compromise safety, whereas zk-rollups do not have this liveness assumption for security.

Poorly calibrated incentives can lead to centralization and new attack vectors.

• Bond Sizing: If the bond is too low, it may not deter fraud. If too high, it discourages participation.
• Sequencer Cartels: A dominant sequencer could absorb slashing costs as a business expense, or attack smaller challengers through transaction front-running or MEV.

A multi-round interactive protocol used to resolve challenges to state transitions. It's a bisection game where the challenger and the proposer iteratively narrow down their disagreement to a single instruction, which is then verified on-chain. This minimizes the computational cost of final verification.

A stake of value posted by actors in the system (e.g., proposers, validators) that can be slashed as a penalty for malicious behavior. This creates a strong cryptoeconomic incentive for honesty, as the potential reward from fraud is outweighed by the guaranteed loss of the bonded funds.

A fixed delay (e.g., 7 days) during which new state commitments can be challenged. This is the vulnerability window for optimistic rollups. No funds can be withdrawn until this period elapses without a successful challenge, ensuring there is ample time for fraud proofs to be submitted.

A cryptographic fingerprint (typically a Merkle root) that represents the entire state of the system (account balances, contract code, storage) after a batch of transactions. Fraud proofs verify that a proposed new state commitment correctly follows from the previous state and the transaction data.

A network participant whose role is to monitor state transitions and submit fraud proofs when they detect invalid ones. Verifiers are economically motivated by a share of the slashed bond from the malicious proposer. Their presence is critical for the system's liveness and security.