51% of ETH blocks are now able to be censored, bye flashbots

It’s time to say good-by to Flashbots. Censorship-prone MEV-Boost relays are creating a growing percentage of Ethereum blocks, jeopardizing the network’s neutrality.
51% of Ethereum blocks can now be censored. It’s time to say good-by to Flashbots.

Key Takeaways

The advent of Flashbots and other MEV-Boost relays, which reshuffle transactions within Ethereum blocks to maximize revenues, has had unexpected repercussions.

Flashbots, the largest MEV-Boost relay, refuses to perform any Tornado Cash-related transaction.

Because MEV-Boost relays refuse to execute some transactions, Ethereum is vulnerable to censorship.

More and more Ethereum blocks are being created.
Flashbots, the most significant MEV-Boost relay, is producing an increasing number of Ethereum blocks. If the MEV organization truly cares about Ethereum, it should consider suspending operations until developers can devise a long-term solution.

Censorship Threatens 51% of Blocks

The censoring of Ethereum’s MEVs is becoming worse by the day.

According to MEV Watch, 51% of Ethereum’s blocks were created yesterday by “OFAC compliant” MEV-Boost relays, which have publicly expressed their desire to censor Tornado Cash or other protocols targeted by the US Treasury in the future.
As it is being manufactured Flashbots and other MEV-Boost relays effectively serve as off-chain markets for on-chain dealers and validators. MEV has taken more than $675 million from blockchain users since January 2020, according to Flashbots statistics.

Flashbots and other MEV-Boost relays have been responsible for producing an increasing number of Ethereum blocks since Ethereum switched to a Proof-of-Stake consensus method. According to MEV monitoring statistics, 90% of blocks were created on September 15 without the use of MEV-Boost relays; by October 14, that figure had plummeted to 43%. This is to be expected, as validators can obtain significantly greater yields by delegating block-building chores to MEV-Boost relays.

The issue is that the larger MEV-Boost relays, particularly Flashbots, have explicitly indicated that they would refuse to provide transaction-related data of Tornado Cash in the blocks they create The reason for this is that the Office of Foreign Assets Control (OFAC) sanctioned the privacy protocol on August 8, claiming it was only used by money launderers and North Korean hackers. Following the prohibition, prominent crypto centralized services such as Circle and Infura began blacklisting Ethereum addresses, while Flashbots was among the first to announce “OFAC compliance.”

Pushback from the Ethereum community caused Flashbots to open-source their relay code; nonetheless, the Flashbots relay still accounts for about 80% of total MEV-Boost relay block generation. MEV-Boost relays created more than 57% of all Ethereum blocks in the 24 hours before the time of writing;

MEV, or “Maximum Extractable Value,” refers to arbitrage opportunities discovered by rearranging transactions inside a block.
88% publicly said that they would refuse to list any Tornado Cash-related transactions. As previously noted, this practically means that 51% of all blocks were generated by relays willing to censor Ethereum if necessary.

What Action Is Being Taken?

Members of the Ethereum community have been pointing out the problem for nearly a month now, but few remedies appear to have been proposed: worse, influential members of the community appear to be avoiding addressing the issue with any seriousness. When Crypto Briefing first reported on the topic a little more than two weeks ago, censorious relays have constructed 25% of all Ethereum blocks produced since September 15.
This figure is at 34% and fast rising.

Eric Wall, a Bitcoin supporter, has been one of the most vocal critics of the restrictions. Wall presented a lecture at Devcon yesterday, arguing that there were several solutions to solve the censorship problem, including developing Proposer Builder Separation (PBS) infrastructure, Inclusion Lists, or Partial Block Auctions. Unfortunately, many alternatives still require study and might take months or years to execute. These identical concepts have been explored in the Flashbots forum; notably, Ethereum developer Vitalik Buterin suggested that PBS may be “realistically” two to eight years in the future.

However, while Ethereum developers will undoubtedly need to update the blockchain’s infrastructure to address this issue, It’s difficult not to condemn Flashbots and other MEV-Boost relays for their actions throughout this debate. According to Gnosis co-founder Martin Köppelmann, several members of the Flashbots team have pledged to “take steps if censorship [becomes] harsher,” but little has been heard from the group thus far. Flashbots has yet to provide a public statement explaining why it believes it is necessary to filter Tornado Cash transactions despite the fact that the US Treasury has not officially asked US block makers to do so. Leading cryptocurrency exchanges Coinbase and Kraken, two of Ethereum’s most important validating institutions, have no problem processing Tornado Cash transactions within their blocks. Why might Flashbots have a different opinion? The group has refused to make the case.
Stephane Gosselin, co-founder of Flashbots, may also disagree with the organization’s path. Gosselin announced his resignation from Flashbots last week, citing a “series of conflicts with the team.” When pressed to elaborate on the nature of the issues, Gosselin answered, “maybe soon.” It’s worth noting that Gosselin has already shown support for perhaps establishing a slicing mechanism against relays themselves.

Other prominent Flashbots team members have remained deafeningly silent. Hasu, the Flashbots strategy lead, recently retweeted a post detailing that, as of October 12, just 0.617% of Ethereum blocks have included any Tornado Cash transactions, and that Tornado Cash transactions had a 99% probability of being picked up by a block producer within five blocks.
But this is a cop-out: just because Tornado Cash transactions may still be made by other block generators doesn’t imply Flashbots aren’t jeopardizing the neutrality of the Ethereum network.

Phil Daian, the co-founder of Flashbots, has similarly minimized criticism. When Köppelmann complained about the quantity of blocks processed by censorious MEV-Boost relays, Daian merely retweeted a message that said “Gnosis should operate a relay,” meaning that if Köppelmann wasn’t satisfied with the way Flashbots was conducting its operations, he should start his own. Surprisingly, Daian also remarked this morning that “the integrity of our market is incredibly essential to [Flashbots]” when someone accused Flashbots of operating its own searcher—which would suggest that it would be looking for MEV chances at the same time, it was offering MEV-Boost services. To be honest, it’s difficult to take Daian and the Flashbots team’s moral high ground seriously when they’ve demonstrated a readiness to censor Ethereum itself.

When it comes to MEV, Flashbots is often seen as a beneficial factor. By moving MEV bidding off-chain, the company has brought down gas prices, and as stated on its website, it has helped reduce the “negative externalities” of MEV for Ethereum users. However, the threat Flashbots pose to Ethereum’s neutrality may be more significant than the services it now delivers. Simply explained, Flashbots aren’t necessary for Ethereum’s sustainability. If Flashbots cannot bring itself to authenticate Tornado Cash transactions for fear of sanctions from OFAC, it should cease operations unless Ethereum core devs figure out how to modify the blockchain’s technology to make censorship impossible. Flashbots is not the only so-called “OFAC compliant” MEV-Boost relay, but it is the largest, and it is still well respected in the crypto world.

Closing Thoughts

It would be in the best interests of the Ethereum ecosystem if Flashbots took the initiative and did the tough thing here. It would also make subsequent Flashbots projects like SUAVE, a “truly decentralized block-builder” unveiled today at Devcon, much easier to get enthusiastic about, as releasing the Flashbots MEV-Boost relay code open source obviously hasn’t been adequate to tackle government surveillance concerns so far.