Censorious MEV-Boost relays, notably Flashbots, are producing an increasing number of Ethereum blocks. If the MEV organization truly cares about Ethereum, it might think about ceasing operations so that developers can put a long-term fix in place.
51% of blocks are threatened with censorship
The MEV censorship issue in Ethereum is getting worse by the hour.
MEV Watch reports that 51% of yesterday’s Ethereum blocks were created by so-called “OFAC compliant” MEV-Boost relays, which are relays that have publicly announced their intention to censor future transactions via Tornado Cash or other protocols targeted by the U.S. Treasury.
Arbitrage opportunities discovered by rearranging transactions within a block while it is being produced are referred as as MEV, or “Maximum Extractable Value.” For on-chain merchants and validators, Flashbots and other MEV-Boost relays essentially act as off-chain block-building markets. Data from Flashbots shows that since January 2020, MEV has taken more than $675 million from blockchain users.
A growing number of Ethereum blocks have been created by Flashbots and other MEV-Boost relays since Ethereum switched to a Proof-of-Stake consensus mechanism. According to MEV monitoring data, 43% of blocks were produced as of October 14 without the use of MEV-Boost relays, down from 90% on September 15. This is understandable given that validators can obtain significantly larger yields by delegating their block-building responsibilities to MEV-Boost relays.
The issue is that the biggest MEV-Boost relays, particularly Flashbots, have made it clear they would not include transactions pertaining to Tornado Cash in the blocks they produce. The Office of Foreign Assets Control (OFAC), citing the privacy protocol’s exclusive use by money launderers and North Korean cybercriminals, placed it to its list of sanctions on August 8. After the prohibition, prominent cryptocurrency centralized services like Circle and Infura started to block Ethereum addresses, while Flashbots was one of the companies to formally announce its “OFAC compliance.”
Flashbots had to expose its relay code as open-source in response to criticism from the Ethereum community, yet it continues to produce approximately 80% of all MEV-Boost relay blocks. In the 24 hours prior to the time of writing, MEV-Boost relays generated more than 57% of all Ethereum blocks; of these, 88% explicitly declared they would refuse to contain transactions that were in any way connected to Tornado Cash. As was already mentioned, this practically means that 51% of all blocks were made by relays that were willing to censor Ethereum if necessary.
The issue has been brought up by members of the Ethereum community for almost a month now, but few remedies appear to have been proposed; what’s more, it appears that well-known community members are avoiding addressing the problem with any feeling of urgency. A little more than two weeks ago, when the scandal was first reported, 25% of all Ethereum blocks generated since September 15 had been created by censorious relays. The percentage is currently at 34% and is rising quickly.
Eric Wall, a supporter of bitcoin, has been a strong voice against the restrictions. Wall made the case that there are several approaches to address the censorship issue, such by creating Proposer Builder Separation (PBS) infrastructure, Inclusion Lists, or Partial Block Auctions, in a presentation he presented at Devcon yesterday. Unfortunately, these ideas still need to be researched, and their implementation could take months or even years. The Ethereum developer Vitalik Buterin noted that PBS may “realistically” be two to eight years down the road when discussing these same concepts in the Flashbots forum.
It’s difficult to avoid criticizing Flashbots and other MEV-Boost relays for their conduct throughout this issue, despite the fact that Ethereum engineers undoubtedly need to figure out how to adapt the blockchain’s infrastructure in order to repair this vulnerability. Flashbots team members allegedly pledged to “take action if censorship [got] harsher,” but little has been heard from the organization thus far, according to Gnosis co-founder Martin Köppelmann. Even though the U.S. Treasury has not specifically ordered U.S. block makers to censor Tornado Cash transactions, Flashbots has yet to explain in public why they feel they must do so. Two of Ethereum’s largest validating companies, leading cryptocurrency exchanges Coinbase and Kraken, have no problems at all processing Tornado Cash transactions within their blocks. Why might Flashbots feel otherwise? The group hasn’t bothered to argue its case.
Stephane Gosselin, a co-founder of Flashbots, might also object to the organization’s course. Last week, Gosselin said that he had left Flashbots due to “a number of problems with the team.” Gosselin responded, “hopefully soon,” when asked if he would go into more detail about the nature of the conflicts. Gosselin has expressed support for conceivably establishing a slicing mechanism against relays themselves, thus it’s important to keep that in mind.
Other prominent Flashbots team members have steadfastly kept quiet. As of October 12, only 0.617% of Ethereum blocks contained any Tornado Cash transactions at all, according to a thread that Flashbots strategy lead Hasu recently retweeted. Tornado Cash transactions also had a 99% chance of being picked up by a block producer within five blocks, according to the same thread. The problem with this line of reasoning is that it amounts to a cop-out: just because other block producers can still make Tornado Cash transactions at the moment doesn’t imply Flashbots isn’t endangering the Ethereum network’s neutrality.
Phil Daian, a co-founder of Flashbots, has likewise played down criticism. When Köppelmann complained about the volume of blocks processed by censorious MEV-Boost relays, Daian simply retweeted a message that said, “Gnosis should run a relay,” suggesting that if Köppelmann wasn’t satisfied with the way Flashbots was running its operations, he should start a competing company. Surprisingly, Daian also claimed this morning that “the integrity of our market is vitally essential to [Flashbots]” in response to a claim that the company had its own searcher, which would have allowed it to look for MEV chances while also offering MEV-Boost services. The claim that Daian and the Flashbots team have strong moral standards is, to put it mildly, difficult to believe given their shown readiness to censor Ethereum itself.
When it comes to MEV, Flashbots is mainly seen as a beneficial influence. By moving MEV bidding off-chain, the group has reduced gas prices and, as stated on its website, has assisted in reducing the “negative externalities” of MEV for Ethereum users. However, the danger Flashbots pose to Ethereum’s neutrality may be more significant than the current services it offers. Simply said, Flashbots is not necessary for Ethereum to exist. Flashbots should cease operations if it is afraid of probable OFAC ramifications and is unable to validate Tornado Cash transactions. This should happen until Ethereum core developers figure out how to alter the blockchain’s infrastructure to prevent censorship. The largest and still well-respected MEV-Boost relay, Flashbots is not the only one that claims to be “OFAC compliant.”
Flashbots should take the initiative here and make the difficult decision; this is in the best interest of the Ethereum ecosystem. Since making the Flashbots MEV-Boost relay technology open source has obviously not been enough to address censorship issues so far, it would also make new Flashbots projects much easier to get enthusiastic for, such as SUAVE, a “truly decentralized block-builder” that was announced today at Devcon.
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