More than half of Ethereum validators censor transactions post-Merge

According to MEV Watch, the amount of OFAC compliant blocks that censor sanctioned transactions has increased to over 51% since the Ethereum blockchain transitioned to the proof-of-stake (PoS) consensus algorithm earlier in September.

While the community calls validators outside of the U.S. to run non-censoring relays such as BloXroute Max Profit, BloXroute Ethical, and Manifold to help the network stay neutral, the majority of validators choose compliant MEV-Boost relays such as Flashbots, BloXroute Regulated, BlockNative, and Eden, according to the aforementioned website.

In August, the Office of Foreign Assets Control (OFAC) — a financial intelligence and enforcement agency of the U.S. Treasury Department — sanctioned Ethereum-based DeFi mixer Tornado Cash and addresses associated with the protocol. In October, crypto policy advocacy group Coin Center, crypto investor David Hoffman, human-right advocate John Doe, and software developer Patrick O’Sullivan filed a complain against OFAC, alleging that the decision to sanction the Tornado Cash protocol was “unprecedented and unlawful”.

At the time of writing, validators are not yet forced by regulators to reject blocks that contain sanctioned transactions, which means that all transactions will be eventually included to the blockchain even if the majority of validators censor sanctioned transactions.

The situation might change if validators decide not to build on top of the blocks that contain sanctioned transactions due to the strict regulatory environment. The community proposes slashing stakes of compliant validators, but the punishment for censoring transactions depends on consensus of the majority. Since the largest validators are centralized regulated entities, there is a high chance that the majority will choose to comply with regulators, making slashing not an option. In that case, a hard fork will become a last resort, but regulated centralized stablecoin issuers will most likely choose the censored chain, leading to a situation in which liquidity and most users will stay on the compliant chain.

The BNB chain upgrades and Binance burns 2 million BNB following a $560 million hack

The BNB Smart Chain (BSC) — previously known as the Binance Smart Chain — went back online after suffering from a bridge exploit, which resulted in a loss of around $560 million worth of BNB.

Following the hack earlier in October, the BNB chain has been temporary paused and Binance has suspended deposits and withdrawals on BSC, so the hacker managed to transfer only about $100 million in funds to other chains.

A week later, the chain upgraded to version 1.1.16, called the “Moran hard fork”, which resolved several issues and re-enabled cross-chain functionality between the BNB Smart Chain and BNB Beacon Chain.

After the hard fork, Binance has completed its quarterly burn of BNB tokens, removing more than 2 million BNB from circulation, the amount that is roughly equal to the amount stolen by the hacker.

In other news

• MakerDAO — the decentralized autonomous organization behind stablecoin DAI — is going through restructurization with the majority of MKR holders voting in favor of splitting the organization into small MetaDAOs such as the Real-World Finance Core Unit, the Events Core Unit, and the Happiness Core Unit.

• Joseph Rotunda — chief regulator of Texas securities — announced that he is investigating crypto exchange FTX and its CEO Sam Bankman-Fried for allegedly offering unregistered securities in the U.S. According to Rotunda, he was able to create a yield-bearing account on the FTX Trading app with his own name and a Texas address.

• The EU regulators prohibited crypto services to Russian residents and entities, leading to major crypto platforms closing up shops in the area. Following declared mobilization, hundreds of thousands of Russian citizens tried to escape the country in order to avoid being drafted to fight in Ukraine. Poland, Czechia, Finland, Estonia, Latvia, and Lithuania have already closed their borders to Russians fleeing the country even if they hold valid Schengen visas.

• The U.S. SEC is reportedly investigating Yuga Labs — the company that created the Bored Ape Yacht Club (BAYC) NFT collection. According to Bloomberg, regulators investigate whether NFTs issued by Yuga Labs should be subject to similar disclosure rules as traditional securities. The agency is also looking into ApeCoin (APE), which went live earlier in March.