Recently, bloXroutes announced that their MEV Relays would start rejecting blocks that contain transactions going to or coming from wallets on the OFAC sanction list. This means transactions involving these non-compliant wallets could potentially be censored from the Ethereum chain, if the blocks containing them are built by compliant block builders.

Let's dive deep into the estimated censorship risk that illustrates the dynamics at play and also look at the math behind how this affects all the transactions.

Background on OFAC Compliance

First, some background on what’s going on. OFAC refers to the Office of Foreign Assets Control in the US, which maintains sanctions programs against countries, groups, and individuals deemed threats to national security.

The recent focus on OFAC compliance stems from the sanctions imposed earlier this year on the cryptocurrency mixing service Tornado Cash. The sanctions designate Tornado Cash as an illegal service and make interacting with its smart contracts a violation of US law.

In an effort to comply with these sanctions, some block builders and mining pools have started censoring transactions going to or from Tornado Cash. BloXroute’s announcement extends this censorship more broadly to transactions with any OFAC-designated crypto address.

Block Builders and Compliance Rates

On Ethereum, transactions are grouped into blocks by specialized network participants called block builders. The block builders, also known as miners or mining pools, compete to assemble valid blocks using a proof-of-work consensus process.

At any given time, each block builder chooses whether to comply with OFAC restrictions when assembling their candidate blocks. If they decide to comply, they will censor non-compliant transactions and not include them in the blocks they produce.

In October 2022, it was estimated that 67% of block builders were OFAC compliant and censoring restricted transactions. However, as of today (20 December 2023), this rate has reportedly dropped to around 36.85% as some mining pools rolled back compliance efforts.

We can use these OFAC compliance rates among block builders to estimate the probability that non-compliant transactions are censored from Ethereum over typical time periods.

To keep the analysis simple, we’ll make the following assumptions:

• Block creation time remains constant at the current average of ~12 seconds per block
• Compliance decisions among block builders are independent for each created block

Given these assumptions, we can model censorship risk over time. Here is the logic:

• If 36.85% of blocks are compliant, then the chance of any given block censoring transactions is 36.85%
• Consequently, the probability of a block not being OFAC compliant is 63.15%
• For multiple blocks in a row, we calculate the joint probability of censorship
• For example, if 5 compliant blocks occur in a row, all containing a transaction, it would be censored for 1 minute.

Now, we can extend this logic to different time intervals:

Probability Estimates Over Time

For 60 seconds

• 5 blocks created
• Chance all 5 blocks are compliant = 0.3685^5 = 0.6795%
• So in one minute, the censorship risk is 0.6795%

The chance that a non-compliant transaction won't be included in any of the 5 blocks is about 0.6795%.

For 120 seconds

• 10 blocks created
• Chance all 10 blocks are compliant = 0.3685^10 = 0.0046%
• So in two minutes, the censorship risk drops to 0.0046%

The probability drops to around 0.0046% for a non-compliant transaction not being included in any of the 10 blocks.

For typical transactions, we care mostly about censorship risk over the course of 1-2 minutes. Given the 36.85% block builder compliance rate, the probability of censorship over these short time frames remains very low.

However, if compliance rates increase further, so, in turn, does the probability of non-compliant transactions being censored and excluded from blocks over the typical transaction duration.

So, as of now, the presence of OFAC-compliant blocks on Ethereum does not significantly affect the processing of non-compliant transactions over typical time frames, and the probability of non-compliant transactions being excluded from the Ethereum blockchain over typical time frames remains low.

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