The Merge: Has Ethereum become a fearsome censorship machine?
Since the passage ofEthereum at Proof-of-Stake (The Merge), too many relay between validators and block producers follow the injunctions of theOffice of Foreign Assets Control (OFAC). However, this body of the US Treasury Department imposes the censorship of certain transactions. Explanations.
Ethereum: what are MEV-Boost Relays?
The relays MEV-Boost (Maximum Extracted Value) implement Vitalik Buterin’s proposal named Propose-Builder Separation (PBS). This method allows validator nodes in the network to maximize their earnings.
The separation between validator nodes proposing blocks and nodes producers create a market, optimizing staking rewards. The validators using the MEV-Boost can thus sell the space (memory) dedicated to the blocks to the producers. Without going into details, this notably prevents the biggest pools offering blocks from optimizing their earnings to the detriment of the others.
The implementation of the MEV-Boost is open source and designed by Flashbots. Validators using it can then increase their staking rewards of approximately 60%.
However, this method has an impact on the censorship resistance of Ethereum. Indeed, these relays can choose trades that they include in their blocks. It goes without saying that many regulators want to censor transactions associated with certain addresses. Now, more than half of the blocks submitted by these relays from The Merge follow the recommendations of the OPAC.
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US OFAC and financial censorship
L’OFACfor Office of Foreign Assets Controlis the agency of the United States Treasury Department responsible for administering and enforcing the economic and trade sanctions from the country. It was mentioned in particular in our columns during theTornado Cash deal. This mixing service for Ethereum is thus accused of having been used to launder the equivalent of 7 billion dollars in cryptos.
It goes without saying that OFAC has the means to exert pressure outside the United States. Unfortunately, its rules and sanctions vary in geometry, as shown by theFinCEN leaks affair in 2020.
According to the MEV Watch site, more than half of the MEV-Boost relay blocks have applied the measures imposed by OFAC since October 14:
The same is true if we regularly observe the last 100 blocks submitted by these relays:
This news is therefore worrying for the defenders of the censorship resistanceone of the reasons to be cryptocurrencies. We will not expand in this article on the motives of regulators, extolling the merits of a world worthy of 1984 where financial transactions are constantly monitored by entities with variable geometry ethics.
What to do as a validator?
Validators on the Ethereum network wishing to strengthen its resistance to censorship can refuse to include these relays MEV-Boost in their configuration file. The three most important relays refusing to comply with OFAC’s injunctions are the following:
This news does not bode well for the future of censorship resistance for Ethereum and cryptocurrencies in general. Regulators have declared war on the proponents of financial freedom, and it doesn’t seem to be stopping anytime soon.
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