Ethereum FedChain FUD
As always, the devil is in the details.
What’s currently happening is called inclusion level censorship — where validators choose not to add specific transactions into the blocks. For a start, this isn’t a problem as block builders have the right to choose which transaction to/not add to the blocks they build. Most times they prioritize those with higher fees.
To capture MEV most efficiently, most validators outsource the block-building process to block relayers. Flashbots run the largest MEV-Boost relayer (they control ~80% of blocks produced by MEV-Boost). Flashbots is a regulated US company, and hence must be OFAC compliant (censoring tornado cash transactions) else, they risk jail time.
So technically, Ethereum isn’t censoring, but rather — MEV-Boost relayers like Flashbots. Block producers (for example Lido) that get their bundle from block relayers (like Flashbots), aren’t censoring themselves. You might ask; “why then are they using block relayers that are censoring”? a) they’ve been using these block relayers before Tornado Cash was added to the sanction list b) it’s profitable to capture MEV.
With a block time of 12 sec and over 50% of blocks being produced are censoring, this means a Tornado Cash transaction can still go through. You’ll have to wait for at least 2 blocks (24 sec), to increase the chances of your transaction going through. Even if 95% were censoring, it’d still go through. All we need is at least 1% to not censor and the transaction would still go through (due to the law of probabilities). The downside here is that you’d wait for minutes (which degrades the UX), rather than the usual 12 sec, to get your transaction through. This again, shows that ethereum isn’t censoring.
Tornado Cash transaction makes up about 0.0017% of Ethereum transactions, meaning that it’s only a minute set of Ethereum transactions being censored. Said another way; would have to wait much longer than 12 sec to get their transaction through. This again, shows that Ethereum isn’t censoring.
Today, it might be a Tornado Cash transaction. Tomorrow, it could be UniSwap. If it ever gets to UniSwap, they’d be social slashed (those censoring), as UniSwap is integral to the ecosystem, its the leading DEX, makes up a large part of Ethereum transactions, and acts as a price oracle to some platforms. That would be a massive degradation to the Ethereum ecosystem as a whole.
Would be important to point out that; validators are block builders, but block builders aren’t necessarily validators. If you are a validator with 32 eth, there’s a 60% chance in a year that you’d be selected at random to build a block. In that case, you are a block builder. The rest of the time, you are a validator that attests to block. MEV-Boost relayers like Flashbot aren’t validators. They only build blocks and can’t attest to blocks.
This leads us to another type of censorship; attestation level censorship. Here validators refuse to attest to blocks. this stops the chain from moving forward as they’d refuse to build on prior blocks, and they’d be socially slashed quickly (even if 20% of them were censoring).
So what’s the way out?
a) Some said Flashbots should close shop. Even if they did, someone else would make Flashbots 2.0, and continue censoring, and/or other block relayers would take market share (some censor too)…they’ll always be a block relayer (under US jurisdiction) censoring because extracting MEV is profitable.
b) Stakers pointing their node away from censoring relays while remaining at least profitable. But in a free market, you can’t bet on everyone being an altruist. Most are profit maximalists (solo stakers inclusive), making this a hard narrative to sell.
c) We get enshrined PBS and crLists. Here MEV-Boost is enshrined into the Ethereum protocol and there won’t be a need for block relayers like Flashbots. Hence, no censoring. This could be added in EIP-4844 (or done separately) but it’d take time to roll out.
d) Shadowrized beacon chain. Here the transactions in the mem-pool are private. Block builders can see the transactions only when they’ve been added, so they can’t tell which is OFAC compliant and which is not, before adding them into the block. Hence, they can’t be held liable. This, in my opinion, is less complicated than enshrined PBS and can be rolled out sooner.
Stuff like this is nuanced, and can’t be boiled down into a single chart (like the one used to spread FUD on Twitter). Hope this sheds some light on the whole “Ethereum is FedChain” FUD.
