By now we’ve all heard about the government crackdown on Tornado Cash. The TLDR is that the US Treasury sanctioned Tornado Cash, an open source Ethereum-based protocol used to anonymize ETH transactions. Tornado Cash was known to be used by criminals and state actors like North Korean hacker group Lazarus, but it was also used by people who simply want anonymity (often to avoid taxes, if we’re being honest).
The issue seems to have spread from a small group of individuals who received a transaction from Tornado Cash to roughly half of all Ethereum blocks. Right now, just about 50% of all Ethereum blocks are being censored by third party software called MEV-Boost built by Flashbots. MEV stands for “Maximum Extractable Value.” It’s basically a special fee someone pays to get a specific ordered placement in a transaction block.
This requires a pretty nuanced conversation about how Ethereum staking works, but to simplify it, according to Flashbots: “Validators running MEV-Boost maximize their staking reward by selling blockspace to an open market of builders. It is estimated that validators running MEV-Boost can increase their staking rewards by over 60%.”
60% more staking rewards is huge, so as you can imagine, most validators are using MEV-Boost. Right now, roughly 44% of stakers aren’t using MEV-Boost, among stakers using it, only 13% are not censoring blocks to be compliant with the Treasury’s sanctions.
Flashbots released a plan in response to the criticism around the centralization of Ethereum transactions through Flashbot’s MEV-Boost pipelines, with the sudden censorship making the issue top of mind. The team announced they’re working on an upgrade called SUAVE, which makes the protocols more censorship-resistant and decentralized.
It’s worth noting that this announcement happened shortly after the co-founder left–reportedly due to internal disagreements around censorship. The dichotomy between profits and decentralization continues to be apparent in many aspects of crypto. It’s not very surprising that a tool called “Maximum Extractable Value Boost” is more focused on profits than censorship resistance.