Mechanism Design Without Monetary Rewards: Economic Security in the XRP Ledger

Abstract

The XRP Ledger sustains federated consensus without paying validators any protocol-level monetary reward: transaction costs are destroyed rather than distributed. This paper argues that the curatorship of the default Unique Node List (dUNL) functions as the economic mechanism that monetary rewards would otherwise provide, and develops a formal framework for evaluating its design. The central thesis is that RPCA security requires alignment across three independent layers-technical consensus, individual incentive constraints, and governance compositionand that the failure of any single layer undermines the other two. Three formal contributions support this claim. First, we introduce Bayesian action-incentive compatibility (BAIC), an equilibrium concept appropriate for consensus settings with discrete hidden actions and imperfect public monitoring, in which validators choose actions rather than reporting types and the curator cannot deploy monetary transfers. Closed-form Bellman values and local comparative statics characterise when honest dUNL participation is individually sustainable; in particular, operational cost is neutral for the honesty margin and binds only at the participation constraint. Second, we correct the coalition-security analysis by distinguishing economically viable from threshold-exceeding coalitions: an economic-security gap exists only when the maximum bribeable coalition size reaches the minimum stylised thresholdexceeding size, with the precise characterisation depending on the internal-allocation rule (equal sharing versus transferable bribes). Third, a triple-alignment theorem integrates these results and yields an archetype-conditional dUNL composition diagnostic. A scenario-based calibration using public XRPL Negative UNL data classifies the 35 dUNL validators by incentive archetype and computes G crit k for each type; the H archetype anchors the lowest economic-security margin but is too few in number for a homogeneous threshold-size coalition, so under the transferable-bribe convention the least-cost threshold coalition is heterogeneous, mixing H-type and I-type validators.