Ethereum’s compliance with the Office of Foreign Assets Control [OFAC] has undergone a significant transformation, reduced by more than half since the momentous Merge upgrade was implemented in September 2022. OFAC-compliant blocks on Ethereum are those that exclude transactions involving parties subject to sanctions by the U.S. Treasury Department’s Office of Foreign Assets Control. The decline in compliant blocks is seen as a victory by those advocating for reduced censorship within the Ethereum ecosystem.
Prior to the Merge event, Ethereum’s OFAC compliance had been on an exponential rise. In November 2022, a substantial 78% of all Ethereum blocks were in compliance with OFAC regulations. This uptick was largely attributed to entities like cryptocurrency exchanges choosing to operate by censoring MEV-Boost relays on their validators.
Among the list of top offenders in terms of censorship were well-known platforms such as Binance, Celsius Network, Bitfinex, Ledger Live, Huobi [HTX], and Coinbase, according to data from MEV Watch. However, as of September 27, the OFAC compliance rate for Ethereum has plummeted to 30%, marking an overall reduction of 57%.
As of today, five out of the six largest block builders within the Ethereum network are in compliance with OFAC sanctions, according to Toni Wahrstatter, a researcher in the Ethereum community. Notably, the sole remaining large builder, titanbuilderxyz, continues to include OFAC-sanctioned transactions, primarily those related to Tornado Cash, in their blocks.
While the relay situation had improved significantly, thanks to the introduction of Ultra Sound, Agnostic, and BloXroute relays, there has been a resurgence in censorship by many of the top builders. This resurgence means that these builders no longer incorporate Tornado Cash transactions into their blocks.
The concept of censorship resistance therefore holds paramount importance in maintaining political neutrality within blockchain networks. The principle is that no single entity should wield control over two-thirds of a blockchain’s content as this goes against the ethos of the core values of decentralization.
Critical Role Of Non-Censoring Relays In Ethereum
To counter OFAC compliance, operators must employ relays that do not engage in censorship based on OFAC requirements. Among the seven major MEV-boost relays most commonly used, only three do not censor in line with OFAC compliance requirements, as per MEV Watch.
It is imperative to note that while not all blocks constructed by OFAC-compliant relays engage in censorship, all blocks built by OFAC-compliant relays will indeed censor when non-compliant transactions are broadcasted on the network. This underscores the significance of validators outside the U.S. considering the deployment of non-censoring relays for the greater benefit of the Ethereum network.