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Babel Fees

We are massive fans of Douglas Adams Hitchhikers Guide to the Galaxy and spent many an hour reading about the antics of Arthur Dent, Ford Prefect and Zaphod Beeblebrox, as well as enjoying the amazing graphics (for the time) of the BBC series.

So what’s the connection?

Well you may recall that the Babel Fish was a creature that when placed in the ear was able to link with the neural structure of the host and translate between languages.

Prof. Aggelos Kiayias explains the concept of Babel Fees in this blog post, which will permit native token transactions to be settled in another token rather than the underlying token for the chain (in our case ADA).

Common wisdom in blockchain systems suggests that posting a valid transaction must incur a cost to the sender. The argument is that, without such constraint, there is nothing to stop anyone from overloading the system with trivial transactions saturating its capacity and rendering it unusable. Given the above tenet, a frequently made corollary is that in any blockchain system where user-defined tokens are supported, it should be prohibited to pay transaction fees in such tokens. Instead, transactions should carry a fee in the native token of the platform that is accepted by all participants as being valuable.  Arguably such a restriction is undesirable. But how is it possible to circumvent the ensuing – and seemingly inevitable – vulnerability? 

https://iohk.io/en/blog/posts/2021/02/25/babel-fees/

Aggelos goes on to explain that this can be achieved by creating a spot market for the transaction concerned by allowing liquidity providers and/or Stake Pool Operators (SPOs) to determine whether to accept and settle. The SPO in this case would pay the transaction fees in ADA and accept the alternative token payment in return.

This approach removes the security issues of allowing a token to run on the chain without using ADA to directly pay fees and creates a new secondary market that will allow SPOs or liquidity providers to advertise their fees for a range of tokens they are willing to process.

Wow!

Along with a lot our SPO colleagues we just got a new business line here at ADAvault.