Ethereum OFAC compliance dips to 45% post-Merge upgrade
The historic Merge upgrade from Sept. 2022 — which marked Ethereum’s transition from proof-of-work (PoW) to proof-of-stake (PoS) — resulted in the overall decline in compliance with standards laid down by the Office of Foreign Assets Control (OFAC).
Ethereum blocks adhering to OFAC compliance censor certain transactions, which has a negative impact on the neutrality of the Ethereum ecosystem. In early August 2022, OFAC sanctioned Tornado Cash and several Ether (ETH) addresses associated with it due to its ability to mask and anonymize transactions.
Before the Merge upgrade, Ethereum’s OFAC compliance increased exponentially as entities such as crypto exchanges opted to run censoring MEV-Boost relays on their validators. The list of top censorship offenders is populated by popular platforms such as Binance, Celsius Network, Bitfinex, Ledger Live, Huobi (HTX) and Coinbase, according to MEV Watch data.
However, the overall OFAC compliance of Ethereum blocks has declined significantly. In November 2022, 78% of the total Ethereum blocks complied with OFAC regulations. As of today, Sept. 27, Ethereum’s OFAC compliance dropped to 30%, recording an overall reduction of 57%.
Countering OFAC compliance requires operators to use relays that do not censor according to OFAC compliance requirements. There are seven major MEV-boost relays that are most commonly used: Flashbots, BloXroute Max Profit, BloXroute Ethical, BloXroute Regulated, BlockNative, Manifold and Eden. However, not all systems adhere to OFAC compliance, according to MEV Watch:
“Of the 7 available major relays only 3 do not censor according to OFAC compliance requirements.”
It is also important to note that 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.
While OFAC regulations primarily target United States-based organizations, validators outside the U.S. must consider running non-censoring relays for the benefit of the network.
Related: US Treasury sanctions Ethereum wallet tied to cartel over ‘illicit fentanyl trafficking’
Amid Ethereum’s reduced OFAC compliance, Grayscale made the decision to abandon all the rights to PoW Ethereum tokens (ETHPoW). However, the decision was attributed to a lack of liquidity in the market. According to an official announcement:
“As such, it is not possible to exercise the rights to acquire and sell the ETHPoW tokens, and on behalf of the record date shareholders, Grayscale is abandoning the rights to these assets.”
On the other hand, some cryptocurrency investment firms like ETC Group have attempted to launch dedicated EthereumPoW exchange-traded products (ETPs).
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New laws to reduce the use of short prison sentences and toughen up community punishments are expected to be introduced within weeks.
Ministers are expected to introduce the new legislation to the Commons after the summer recess.
The changes will abolish most short-term prison sentences and introduce an earned release scheme, based on a model used in Texas, where prisoners who demonstrate good behaviour can be freed earlier – while those who disobey prison rules are detained for longer.
This will include some prisoners jailed for violent offences, although those convicted of the most dangerous crimes and for terrorism will be excluded.
Shabana Mahmood (left) was said to be impressed by the system in place in Texan prisons. Pic: PA
The new bill will introduce many of the changes recommended by the independent sentencing review, carried out by former Conservative justice minister David Gauke earlier this year. It represents one of the largest overhauls of sentencing in a generation and marks a cornerstone of the government’s effort to reduce the size of the prison population in England and Wales.
As well as reducing the use of short custodial sentences, the changes will also toughen up community sentences, introducing a wider range of punishments for those serving time outside of prison. This could include bans on going to stadiums to watch sports or music events, as well as restrictions on visiting pubs, and the wider use of drug testing.
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Becky Johnson speaks with Daniel, a former convict, who was released early after prisons reached capacity.
Other punishments could include driving and travel bans, as well as restriction zones – confining them to certain areas. Some of these can already be imposed for certain crimes, but the new laws will mean that these could be handed down by a judge for any offence.
Under the legislation, which it is understood will be introduced in September, prison sentences of 12 months or less will be scrapped, except for in exceptional circumstances such as domestic abuse cases. Meanwhile, the length of suspended sentences – where an offender is not sent to prison immediately unless they commit a further crime – will be extended from two years to three.
The justice secretary is believed to have been inspired by the earned release scheme during a visit to the States, where she learned about the model being used in Texas to cut crime and bring their prison population under control.
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England is on course to run out of prison places for adult men by November, the Justice Secretary has warned.
Shabana Mahmood said that criminals who break the rules “must be punished” and that those serving their sentences in the community “must have their freedom restricted there, too”.
She added: “Rightly, the public expect the government to do everything in its power to keep Britain safe, and that’s what we’re doing.”
A spokesperson for the Ministry of Justice added: “This government inherited a prison system days away from collapse.
“That is why we are building 14,000 more prison places, with 2,500 already delivered, but we know we can’t build our way out of this crisis.
“Without further action, we will run out of prison places in months, courts would halt trials and the police [would] cancel arrests. That is why we are overhauling sentencing to make sure we always have the prison places needed to keep the country safe.”
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