Key Takeaways
- The rise of Flashbots and other MEV-Boost relays, which reorder transactions within Ethereum blocks to squeeze out profits, has come with unintended consequences.
- Flashbots, the largest MEV-Boost relay, refuses to process any transaction related to mixing protocol Tornado Cash.
- This places Ethereum under the threat of censorship, as more than 51% of the network’s blocks are being produced by MEV-Boost relays that refuse to process certain transactions.
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More and more Ethereum blocks are being produced by censorious MEV-Boost relays, the most notable of which is Flashbots. If it really has Ethereum’s best interests at heart, perhaps the MEV organization should consider winding down its operations until developers can implement a long-term solution.
51% of Blocks Under Censorship Threat
Ethereum’s MEV censorship problem is getting worse by the day.
According to MEV Watch, 51% of Ethereum’s blocks produced yesterday were built by so-called “OFAC compliant” MEV-Boost relays, meaning relays that have openly stated their intention to censor transactions related to Tornado Cash or other protocols targeted by the U.S. Treasury in the future.
MEV, or “Maximum Extractable Value,” is a term used to describe arbitrage opportunities found by reordering transactions within a block while it is being produced. Flashbots and other MEV-Boost relays essentially provide off-chain block-building marketplaces for on-chain traders and validators. According to Flashbots data, MEV has extracted more than $675 million from blockchain users since January 2020.
Since Ethereum transitioned to a Proof-of-Stake consensus mechanism, Flashbots and other MEV-Boost relays have been responsible for building an increasing amount of Ethereum blocks. Per MEV watch data, 90% of blocks were produced on September 15 without using MEV-Boost relays; that number has dropped to 43% as of October 14. This is expected, as validators can achieve substantially higher yields by outsourcing their block-building duties to MEV-Boost relays.
The problem is that the largest MEV-Boost relays, especially Flashbots, have openly stated they would refuse to include transactions related to Tornado Cash in the blocks they produce. The reason for that is that the Office of Foreign Assets Control (OFAC) added the privacy protocol to its sanctions list on August 8, arguing it was solely being used by money launderers and North Korean cybercriminals. Following the ban, major crypto centralized services like Circle and Infura moved to blacklist Ethereum addresses, and Flashbots was among the organizations to quickly declare its “OFAC compliance.”
Pushback from the Ethereum community prompted Flashbots to release its relay code as open-source; however, the Flashbots relay is still responsible for almost 80% of all MEV-Boost relay block production. In the 24 hours before the time of writing, more than 57% of all Ethereum blocks were produced by MEV-Boost relays; of these, 88% openly stated they would refuse to include transactions in any way related to Tornado Cash. As previously stated, that effectively means that 51% of all blocks were produced by relays comfortable with censoring Ethereum if need be.
What Is Being Done?
Members of the Ethereum community have been pointing out the problem for about a month now, but few solutions seem to have been put forward: worse, it seems that prominent members of the community are avoiding addressing the issue with any sense of urgency. When Crypto Briefing originally covered the controversy a little more than two weeks ago, a total of 25% of all Ethereum blocks produced since September 15 had been built by censorious relays. That number now stands at 34% and is rapidly increasing.
Bitcoin advocate Eric Wall has been one of the leading figures calling out the censorship. Wall gave a presentation at Devcon yesterday in which he argued that there were multiple ways of solving the censorship issue, including by building Proposer Builder Separation (PBS) infrastructure, Inclusion Lists, or Partial Block Auctions. Unfortunately, these solutions still require research and could take months or years to implement. These same ideas have been discussed in the Flashbots forum; quite notably, Ethereum creator Vitalik Buterin stated that PBS may “realistically” be two to eight years down the line.
But while Ethereum developers definitely need to figure out a way to change the blockchain’s infrastructure to patch this vulnerability, it’s hard not to criticize Flashbots and other MEV-Boost relays for their behavior throughout this controversy. According to Gnosis co-founder Martin Köppelmann, various members of the Flashbots team committed to “take actions if censorship [became] worse,” but little has come from the organization so far. Flashbots has yet even to make a public statement explaining why they believe they must censor Tornado Cash transactions even though the U.S. Treasury has not explicitly instructed U.S. block producers to do so. Leading crypto exchanges Coinbase and Kraken, two of Ethereum’s largest validating entities, have no issue whatsoever with processing Tornado Cash transactions within their blocks. Why would Flashbots feel differently? The organization hasn’t deigned to make the argument.
Flashbots co-founder Stephane Gosselin may also disagree with the organization’s direction. Gosselin announced last week that he had resigned from Flashbots over a “series of disagreements with the team.” When asked to expand on the nature of the disagreements, Gosselin said he would, “hopefully soon.” Worth bearing in mind is that Gosselin has previously voiced approval for potentially installing a slashing mechanism against relays themselves.
Other high-profile Flashbots team members have been stubbornly silent. Flashbots strategy lead Hasu recently retweeted a thread explaining that, as of October 12, only 0.617% of Ethereum blocks had incorporated Tornado Cash transactions at all, and that Tornado Cash transactions had a 99% chance of getting picked up by a block producer within five blocks. But this line of thinking feels like a cop-out: just because Tornado Cash transactions are (currently) still able to get produced by other block producers doesn’t mean Flashbots isn’t threatening the neutrality of the Ethereum network.
Flashbots co-founder Phil Daian has also downplayed criticism. When Köppelmann decried the number of blocks being processed by censorious MEV-Boost relays, Daian simply retweeted a post saying “Gnosis should run a relay,” implying that if Köppelmann wasn’t happy with the way Flashbots was handling its operations, he should set up a rival business. Incredibly, Daian also stated this morning that “the integrity of our market is extremely important to [Flashbots]” when someone accused Flashbots of running its own searcher—meaning that it would be seeking MEV opportunities at the same time as it was providing MEV-Boost services. It’s frankly quite hard to take Daian and the Flashbots team’s high moral ground seriously when they have shown their willingness to censor Ethereum itself.
Flashbots is largely seen as a positive force when it comes to MEV. The organization has largely helped “mitigating the negative externalities” of MEV for Ethereum users so far, as it says on its website. But the threat Flashbots poses to Ethereum’s neutrality is arguably more important than the services it currently provides. Flashbots isn’t essential to Ethereum’s survival—as attested by the fact that 43% of validators don’t feel the need to use MEV-Boost relays at all. Quite simply, if Flashbots cannot bring itself to validate Tornado Cash transactions out of fear of possible OFAC repercussions, it should wind down its operations until Ethereum core developers figure out a way to change the blockchain’s infrastructure to make censorship impossible. Flashbots isn’t the only so-called “OFAC compliant” MEV-Boost relay, but it’s the largest, and it is still highly regarded in the crypto community.
It would be in the Ethereum ecosystem’s best interest for Flashbots to take the initiative here and do the difficult thing. It would also make new Flashbots initiatives like SUAVE, a “fully decentralized block-builder” that was announced today at Devcon, much easier to get excited for, since clearly making the Flashbots MEV-Boost relay code open source hasn’t been enough to solve censorship issues so far.
Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and several other cryptocurrencies.
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