Hello devs,

I've had this thought rattling around and thought it was worth putting to a
wider audience since
I haven't really seen it in other contexts. I've been working on eltoo
designs for Elements and
eventual inclusion into Bitcoin. With that in mind there's been a
reasonable amount of discussion
on the remaining unknowns on how well eltoo could work. To me the biggest
issue is BIP125 rule#3.

To quote:"The replacement transaction pays an absolute fee of at least the
sum paid by the original
transactions."

In the ANYONECANPAY-like scenarios like eltoo that require "bring your own
fees", this essentially
means the counterparty(or anyone, if you don't include chaperone sigs[0])
can post a series of low
feerate update transactions, or the final update, with bloated
inputs/outputs(depending on flags),
and this results in illicit HTLC timeouts as the channel is unable to be
settled in time, unless you fork
over quite a few sats. This is a problem in both "vanilla" eltoo[1] from
the original paper, as well as the
"layered commitments" style of eltoo[2]. This problem is highly reminiscent
of the ANYONECANPAY
pinning that others have discussed for vaults and other usecases, in that
anyone can include new
inputs(and sometimes outputs) to make the overall feerate lower. To
promptly get the final transactions
settled, you are forced to over-pay, and essentially refund your griefing
counterparty by knocking their
inputs out of the mempool.

Fixing BIP125 rule#3 would be great. It's also a while out at a minimum.

There are thoughts on how to mitigate some cases[3] of this pinning using
policy, and could be extended
to cover this particular pinning case(restrict both transaction weight AND
the weight of the descendant
package, or maybe just include the txns weight in the original idea?). This
might be the simplest idea,
if it ends up being deemed incentive compatible and deployed.

In case the above is not incentive compatible, we can use more drastic
measures. Another tactic would
be to use transaction introspection opcodes to smooth around these policy
issues.

Elements has its own set of transaction introspection codes[4], but fairly
standard introspection codes
seem to be sufficient.

This example is using Rusty's quite recent OP_TX proposal[5] with a single
extension but as mentioned
before it's all fairly standard. The actual eltoo-enabling opcode
implementation is basically orthogonal
to this problem, so I'm simply focusing on restricting the size of the
transaction package being
submitted to mempools.

For simplicity of a working example, we'll assume a set of "state" outputs
that are continuously being spent
off-chain and sent to a committed set of outputs. In vanilla eltoo case
this corresponds to the first
input and output you typically see in diagrams. The state transitions
include no fees themselves,
sending inputs of sum value N to outputs that sum to the value of N.
Vanilla eltoo uses SIGHASH_SINGLE
to bind just the first input/ouput pair. To post on-chain, we will need to
include at least one input,
and likely an output for change.

We add OPTX_SELECT_WEIGHT(pushes tx weight to stack, my addition to the
proposal) to the "state" input's script.
This is used in the update transaction to set the upper bound on the final
transaction weight.
In this same input, for each contract participant, we also conditionally
commit to the change output's scriptpubkey
via OPTX_SELECT_OUTPUT_SCRIPTPUBKEY and OPTX_SELECT_OUTPUTCOUNT==2. This
means any participant can send change back
to themselves, but with a catch. Each change output script possibility in
that state input also includes a 1 block
CSV to avoid mempool spending to reintroduce pinning. This allows the
change value to be anything, contra to
what SIGHASH_ALL would give you instead.

With this setup, you can't CPFP-spend the fee change outputs you create,
but you can RBF as much as
you'd like by RBFing at higher feerates, using any number of inputs you'd
like provided the total tx
weight doesn't exceed the OPTX_SELECT_WEIGHT argument.

With more engineering we can re-enable CPFP of this change output as well.
Handwaves here, but we could
encumber change outputs to either the aformentioned 1 block CSV encumbered
outputs or one to another
OPTX_SELECT_WEIGHT, recursively. This would allow each counterparty to CPFP
N times, each transaction
a maximum weight, and use the 1 block CSV as an "escape hatch" to get their
fee output back out from
the covenant structure. We could mix and match strategies here as well
allowing bigger transactions at
each step, or more steps. I suspect you'd want a single weight-bound CPFP
that can later be RBF'd any
number of times under this same weight limit.

TL;DR: Mempool is hard, let's use transaction weight, output count, and
output scriptpubkey,
and ??? introspection to avoid solving life's hard problems.

0:
https://lists.linuxfoundation.org/pipermail/lightning-dev/2019-May/001994.html
1: https://blockstream.com/eltoo.pdf
2:
https://lists.linuxfoundation.org/pipermail/lightning-dev/2020-January/002448.html
3:
https://gist.github.com/glozow/25d9662c52453bd08b4b4b1d3783b9ff?permalink_comment_id=4058140#gistcomment-4058140
4:
https://github.com/ElementsProject/elements/blob/master/doc/tapscript_opcodes.md
5:
https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2022-May/020450.html