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‘Concerning precedent’ — bloXroute Labs' MEV relays to reject OFAC blocks

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One of the largest producers of censorship-resistant blocks on Ethereum has made a complete u-turn, announcing it will start censoring OFAC-sanctioned blocks across all of its MEV relays in compliance with local laws.

The firm, bloXroute Labs — which has produced at least 400,000 Ethereum blocks from its two leading Maximal Extraction Value (MEV) relays — made the announcement of its policy change on Dec. 18 in a post on X (formerly Twitter), noting:

“Effective immediately, all bloXroute relays will reject block bids if they contain OFAC transactions."

An "OFAC transaction," as described by bloXroute Labs, is any that interacts with a wallet that has been sanctioned by the United States Office of Foreign Asset Control, or OFAC.

All of bloXroute Labs' relays will be affected, including the “bloXroute Max Profit” relay, the second largest censorship-resistant MEV relay with over 380,000 blocks produced since the Ethereum Merge on Sept. 15, 2022, according to data shared with Cointelegraph by Australian blockchain development firm Labrys.

Number of censorship-resistant blocks produced by the relays since the Ethereum Merge. Note the below table is Labry's best estimate based on data from MEV Watch. Please note there is a margin of error with this data due to multiple relays submitting the same blocks in some instances.Source: Labrys

Despite the news, bloXroute Labs says it is still committed to keeping Ethereum decentralized and permissionless while operating within the bounds of the law.

However, some members of the Ethereum community claim that stricter compliance measures are now limiting pathways to credible neutrality on Ethereum.

This “sets a concerning precedent for the industry,” Labry’s CEO Lachlan Feeney told Cointelegraph.

“Like the internet, censorship should be avoided [at the protocol level] and instead, rules and regulations are best applied at the application level,” Feeney explained.

Given Ethereum is a global infrastructure, Feeney said he was concerned that more countries will enforce their own sanctions, which could make it “impossible” to construct a block that complies with all regulatory regimes around the world:

“What happens when China or Russia wants transactions sanctioned? Should these sanctions be applied also, even if they are sanctioning legitimate U.S. businesses?”

About 36% of blocks are currently censored due to those blocks containing OFAC-sanctioned transactions, according to MEVWatch.info, down from a peak of 78% on Nov. 20. It has mostly hovered around 30-40% since March.

Post-Merge OFAC compliant blocks day-to-day since Sept. 15, 2022. Source: MEVWatch.info

MEV relays are used by validators to extract value from a blockchain network by adding, removing, or changing the order of transactions in a block. As MEV profits often come at the expense of ordinary users, MEV-Boost relays were introduced to minimize that harm.

Related: Flashbots builds over 82% relay blocks, adding to Ethereum centralization

Censorship on Ethereum became a concern when it transitioned to proof-of-stake on Sept. 15, 2022. A month before that, the United States Office of Foreign Asset Control started sanctioning certain wallet addresses linked to criminals and transactions from cryptocurrency mixers, such as Tornado Cash.

This has cornered many MEV relays worldwide to choose between keeping Ethereum credibly neutral or complying with local laws.

Feeney said he isn’t sure whether bloXroute was forced into compliance but he’s sure the decision wasn’t made lightly — as the firm acknowledged that it would reduce the win-rate of their relays.

Magazine: Ethereum restaking: Blockchain innovation or dangerous house of cards?

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