Censorship-resistance is quintessential to Ethereum’s integrity, a feature as important as decentralization. Hence, the heated debate around Liquid Staking Derivatives (LSDs) and Lido in particular, as they potentially put both of these principles in jeopardy.

However, LSDs are not the only factor jeopardizing Ethereum’s censorship-resistance ability; MEV bots are also challenging it!

To understand what is happening, let’s begin with what censorship-resistance entails.

In blockchain frameworks, censorship resistance ensures that all network regulations are established and enforced impartially by users, and cannot be altered for personal gains by a person or an entity.

Within a censorship-resistant blockchain, a user is assured the ability to conduct immutable transactions on a blockchain network without requiring permission from any third party.

No entity, whether it be a nation-state, corporation, or third party, possesses the authority to regulate who can engage in transactions or retain their assets within the network. Censorship resistance guarantees that the network’s governing laws are predetermined and cannot be modified retroactively to conform to a particular agenda.

A neutral, censorship-resistant and decentralized system is theoretically robust enough to be able to deflect attacks from even well-resourced actors.

So how do MEV bots threaten censorship-resistance?

What are MEV bots?

MEV, or Miner/Maximum Extractable Value, is a set of strategies employed by miners or traders to maximize their profits by reordering, inserting or censoring transactions in a blockchain network.

Validators can leverage MEV-boost relays to increase their yields on the Ethereum blockchain. By configuring their mev-boost settings, validators can specify which relays they would like to receive blocks from, and can sell block space to a pool of block builders, resulting in an increase of up to 60% in their ETH staking rewards.

The separation of proposer and block-builder, also known as PBS, is a frequently employed MEV tactic in which validators can choose to delegate their block production duties to the bidder who offers the highest price, thereby raising their annual percentage rate (APR).

But there are two major drawbacks.

MEV bots issues

MEV was originally intended to enhance efficiency for validators and users of the Ethereum network, but it comes with two unwanted side effects: re-centralization and the censorship of transactions and applications.

When validators relinquish control over transaction selection and delegate block construction to MEV-boost Relays, they hand over this control to MEV-boost relay providers who operate as conventional business entities.

These handful of businesses through their MEV-bots will pick and choose transactions as well as disregard them entirely, opening the door to re-centralization and censorship.

A large portion of them derive from the US and thus are subjected to US jurisdiction. This means censoring transactions the government doesn’t approve of, including those deriving from mixing service Tornado Cash, or disallowing transactions from sanctioned addresses under the mandate from OFAC.

Not all blocks built by OFAC compliant relays are censoring, however, all blocks built by OFAC compliant relays will censor when non-compliant transactions are broadcast to the network.

Today, on average 85% of Ethereum blocks are being MEV-boosted.

It’s not far-fetched to say that they are running the show.

On the day of the merge, only 10% of blocks were MEV-boosted, 50 days later, 87% of them were MEV boosted among which 72% were OFAC compliant.

As of now, 81% of current network validators, 824,284 of them exactly, have registered with the Flashbot relay.

But good news for censorship resistance on Ethereum, bad news (may be) for regulators, since November there has been a huge shift in the ratio OFAC compliant/Non-OFAC compliant MEV bots used by validators.

A shift which could have been precipitated by the FTX scandal and the need by the community as a whole to distance themselves from anything centralized and regulated.

MEV watch statistics shows that on November 21th, 2022, at their peak, OFAC compliant MEV-bots powered 79% of Ethereum blocks.

Since then they have slowly but consistently decreased.

On March 1st, “only” 39% of blocks were OFAC compliant.

But this summer saw a new rise in OFAC compliant MEV-bots with a pic at 54% in August 17th. Since then they make-up for around 35–45% of Ethereum blocks on average.

Furthermore, MEV watch statistics also reveal that since mid-February, an increasing number of validators had opted out of using MEV-bots. On February 16th, only 9% of blocks were not MEV-boosted, whereas 10 days later, that percentage had risen to 15%. For months on hand, 13–15% of blocks were not MEV-boosted.

This reduction in MEV-boost blocks may have been a result of a significant influx of new validators attracted by Ethereum Shanghai who had yet to choose or not to operate with MEV-bots.

This trend, though, didn’t last beyond mid-june. From mid-june to today, 5–7% of blocks only are not MEV-boosted.

A situation worse than before.

Today, ~92,5% of blocks are MEV-boosted and 47% are enforcing OFAC compliance.

A threat on Ethereum’s decentralization and censorship resistance, that will be exacerbated to unfathomable level by the LSDs challenge and Lido’s 33% threshold that lays ahead.

It seems quite inevitable now that Ethereum is about to experience core-changing events that will profoundly transform the web3 landscape.

About us

Nefture is a Blockchain Security Company that secures crypto transactions!

With Nefture Security, you can get your Wallet security audit for free. Plus, enjoy the added peace of mind that comes with immediate alerts on new wallet approvals, as well as a monthly security report!

Check if your wallet is compromised now⚡https://www.app.nefture.com/

‍