Ethereum Censorship Risk: How Compliance Pressure and MEV Infrastructure Threaten Neutrality

Ethereum censorship risk refers to the increasing likelihood that validators, block builders, or MEV relays selectively exclude transactions from blocks due to regulatory compliance pressures, particularly related to OFAC sanctions. As Ethereum relies heavily on MEV-Boost infrastructure and proposer-builder separation, transaction inclusion can be influenced by centralized intermediaries, potentially undermining the network’s principle of credible neutrality and permissionless access.

What is Ethereum censorship risk?

Ethereum censorship risk refers to the growing ability of network validators and block builders to selectively exclude or filter specific transactions from being included in blocks, primarily due to regulatory compliance pressure. Following the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) sanctions on Tornado Cash in August 2022, about 72% of blocks posted to MEV Boost are now considered “censored,” up from about 25% in November 2022, according to research by Ethereum Foundation researcher Toni Wahrstätter. This implies validators deliberately exclude transactions involving OFAC sanctioned addresses from their blocks.

The risk materializes through Ethereum’s MEV Boost infrastructure, where validators outsource block production to specialized relays and builders. Of the seven major relays, only three do not censor according to OFAC compliance requirements. While anything less than about 99% means Ethereum remains censorship resistant in practice, the increasing prevalence of compliance driven transaction filtering threatens Ethereum’s foundational principle of credible neutrality and permissionless access.

Why is compliance pressuring Ethereum’s neutrality?

Compliance pressure threatens Ethereum’s neutrality primarily through institutional capital flows and regulatory frameworks that demand legally compliant network operations. Around 46% of Ethereum blocks were made by censoring actors that intend to comply with OFAC sanctions, demonstrating how validators face difficult choices between maintaining credible neutrality and meeting legal obligations.

The tension intensifies because a validator that proposes a block including a transaction involving an OFAC sanctioned address may find it difficult to argue they had no alternative, making legal liability a real concern. As institutional adoption accelerates through ETFs and staking services, compliance driven censorship can become economically rational, even if it undermines Ethereum’s commitment to credible neutrality and permissionless access.

How can validators/relays censor transactions?

Validators and relays can implement censorship through the MEV Boost infrastructure, where validators outsource block production to specialized parties. When validators use MEV Boost, they configure which relays they will accept blocks from, creating a multi layer filtering surface. Block builders construct optimized blocks and submit them to relays, which then aggregate candidate blocks and select the highest bidding one. Relays that screen out transactions associated with Tornado Cash to comply with OFAC illustrate how this architecture can enable systematic filtering.

Censorship can occur at two key points: builders can exclude specific transactions when assembling blocks, and relays can censor by filtering blocks before offering them to validators. Once validators commit to a block header through MEV Boost’s blind auction system, they cannot see transaction contents until after signing, which increases dependence on relay behavior. Reports that several of the largest block builders exclude transactions sanctioned by the U.S. government suggest censorship can become structural rather than exceptional.

What role does MEV Boost relay centralization play?

MEV Boost relay centralization amplifies censorship risk by concentrating transaction filtering power in a small set of intermediaries. In the last 14 days, MEV Boost in the proposer builder separation (PBS) era produced 91.5% of total blocks on Ethereum, yet only 11 relay entities participated, and the number has reportedly fallen to nine. Research also suggests the relay ecosystem is more concentrated than the block builder ecosystem, with bloXroute Labs holding the largest share at 45.6%. This concentration increases systemic vulnerability, because a small number of entities can influence which blocks are proposed and which transactions are included.

This centralization is partly structural. Under the current PBS design, relays may have weak direct incentives, which can lead to relay attrition over time and raise the risk of critical mainnet centralization and censorship pressure. More recent data is often cited to argue that a small number of builders have dominated the market, which can further enable widespread compliance driven filtering.

Why does censorship risk matter for DeFi users?

Censorship risk affects DeFi users through transaction delays that can degrade both security and financial outcomes. Research suggests that after Ethereum’s move to Proof of Stake and broader adoption of proposer builder separation, the inclusion of censored transactions can be delayed significantly. These delays are especially harmful for time sensitive operations: in DeFi, a transaction can become stale within seconds. In some cases, delays can cause transactions to fail, which is particularly costly because the sender may still pay gas for the failed attempt.

Beyond delays, censorship vulnerability can strengthen MEV attacks that extract value directly from users. Inclusion delays can make sandwich attacks easier, allowing attackers to manipulate prices and exploit delayed execution. Traders may suffer worse execution and higher slippage, while liquidity providers can face adverse rebalancing dynamics from arbitrage. The combined risk of delayed inclusion, failed transactions, and MEV exploitation makes censorship pressure a material threat to DeFi’s promise of permissionless, fair access.

How can Ethereum reduce censorship without breaking compliance?

Ethereum researchers and builders have proposed protocol level solutions intended to increase censorship resistance without forcing individual validators into direct regulatory conflicts. One direction is inclusion list style designs, such as Fork Choice Enforced Inclusion Lists (FOCIL, sometimes referenced as EIP 7805). In this model, a committee of validators constructs transaction lists that proposers must include, and blocks are checked against corresponding inclusion lists. Another direction is enshrined PBS (ePBS), which would integrate PBS directly into the protocol and reduce reliance on trusted relays.

The core idea is to make timely inclusion harder to suppress by distributing censorship resistance across multiple parties and reducing the leverage of centralized intermediaries. Additional proposals, such as encrypted mempools, aim to hide transaction contents until inclusion is more certain, reducing the ability of intermediaries to filter based on content. Together, these approaches attempt to preserve user inclusion guarantees while allowing validators to maintain compliance autonomy within their own constraints.

Conclusion

Ethereum’s censorship risk is not about permanent exclusion, but about structural filtering power emerging within MEV infrastructure under regulatory pressure. While compliance concerns are real for validators, concentration among relays and builders increases systemic vulnerability. Ongoing protocol proposals such as enshrined PBS, inclusion lists, and encrypted mempools aim to rebalance censorship resistance at the base layer, preserving Ethereum’s neutrality without forcing operators into direct legal conflict.