Censorship Auction

The auction is built on the principle that censorship is a service with a market price. Validators signal a willingness to censor by placing a bid, which is typically a bond or a fee paid to the protocol. The highest bidder wins the right to produce a block that excludes the specified transaction(s). This creates a verifiable cost for censorship, making it economically irrational for casual or ideological censorship.

Participants must lock capital (a bond) to place a censorship bid. This bond serves two critical purposes:

• Collateral for Performance: It guarantees the validator will produce the censored block as promised.
• Slashing Risk: If the winning bidder fails to produce the block or includes the censored transaction, their bond can be slashed (forfeited). This aligns economic incentives with the promised action.

Unlike covert censorship, this mechanism forces all censorship actions into the open. The auction bids, winners, and target transactions are recorded on-chain. This creates an immutable, public ledger of censorship attempts, allowing the network to measure and analyze censorship pressure. It transforms a subjective act into a quantifiable metric (the auction price), enabling objective debate about network neutrality.

Censorship Auctions are a direct counter-measure to certain forms of Maximal Extractable Value (MEV). In a MEV auction (e.g., on a builder marketplace), searchers pay validators to include profitable transactions. A Censorship Auction flips this model: entities pay to exclude transactions. It creates a parallel market that can counteract inclusion-based MEV strategies, adding a new dimension to block space economics.

A practical example is a proposed feature for MEV-Boost relays. In this design, a relay could run a side-auction where entities bid for the right to censor specific transactions (e.g., OFAC-sanctioned addresses) from the block bundles they forward to validators. The winning bid's proceeds could be shared with the validator, creating a revenue stream for compliance, while making the censorship action and its cost transparent.

While designed for transparency, the mechanism faces significant criticism:

• Legitimization Risk: It may institutionalize and financially incentivize censorship.
• Wealth Concentration: Deep-pocketed entities (e.g., states, large corporations) could persistently win auctions, centralizing censorship power.
• Protocol Complexity: Adds significant game-theoretic and implementation overhead to consensus clients and relay networks.

Block producers may be compelled by legal orders to censor transactions from sanctioned addresses. A censorship auction provides a formal, transparent mechanism to execute this compliance, separating the act of censorship from the block-building process itself. This is a primary driver in jurisdictions with strict financial regulations.

• Example: OFAC sanctions requiring the exclusion of specific wallet addresses.
• Mechanism: The right to produce a censored block is auctioned to a compliant entity.

The most common motivation is to capture value from transaction ordering. Searchers bid in an auction for the right to propose a block with a specific, profitable order of transactions.

• Process: A seearcher identifies an arbitrage, liquidiation, or other MEV opportunity.
• Auction: They bid a portion of their expected profit to the block producer for the right to construct the block that captures it.
• Outcome: This turns latent MEV into explicit revenue for the validator/sequencer.

Beyond specific MEV opportunities, auctions create a competitive market for block space, ensuring block producers capture the full economic value of their position. This is a generalized profit motive.

• First-price auctions force bidders to reveal their true willingness-to-pay.
• This can significantly boost validator rewards beyond standard block rewards and transaction fees.
• It aligns the block producer's incentive with extracting maximum value from the right to propose the next block.

Users or applications with time-sensitive transactions (e.g., closing a leveraged position during volatility) may bid to have their transactions included at the top of the next block. This is a direct form of paid prioritization facilitated by the auction.

• Use Case: A DeFi user needing to liquidate a position before being liquidated themselves.
• Contrasts with a simple fee market, as it involves bidding for a specific ordering, not just inclusion.

Paradoxically, by commoditizing the right to censor or reorder, an auction can decentralize that power. Instead of a single centralized entity (like a dominant block builder) making all ordering decisions, the auction allows any qualified bidder to purchase that right for a specific block.

• Mitigates Risk: Reduces reliance on a single trusted party for fair ordering.
• Market-Based: Control flows to those who value it most in each round, preventing permanent consolidation.

A formal, on-chain auction makes the process of transaction ordering and potential censorship explicit and auditable. This is preferable to off-chain, opaque deals between searchers and validators (proposer-builder separation schemes aim for similar transparency).

• On-Chain Bids: Provide a public record of the price of censorship or reordering.
• Verifiability: The network can observe that the auction winner indeed produced the subsequent block, ensuring the mechanism's integrity.

A censorship auction is a market-based mechanism where validators or block producers accept sealed bids from entities wishing to prevent specific transactions from being included in a block. The highest bidder wins the right to have their specified transactions censored for a given block or time period. This formalizes censorship as a payable service within the protocol's economic model.

The fundamental risk is the subversion of permissionless and neutral transaction inclusion. It creates a vector for:

• Targeted Financial Censorship: Blocking transactions from specific addresses (e.g., sanctioned entities, competing protocols).
• MEV Extraction: Extending Maximal Extractable Value strategies to include 'pay-to-exclude' alongside 'pay-to-include'.
• Protocol Attack: Selectively censoring governance or upgrade transactions to stall or manipulate a network.

The auction creates a Nash equilibrium where rational, profit-maximizing validators are incentivized to participate. Key dynamics include:

• Revenue Source: Censorship becomes a direct, protocol-sanctioned revenue stream, competing with or supplementing traditional block rewards and MEV.
• Collusion Risk: Validators may form cartels to artificially inflate censorship prices or enforce blanket censorship policies.
• Bid Visibility: Sealed-bid vs. open-bid designs significantly impact strategy and detectability.

While related, censorship auctions differ from standard MEV (Maximal Extractable Value):

• MEV Focus: Reordering or inserting transactions for profit (e.g., arbitrage, liquidations).
• Censorship Auction Focus: Paying for the omission of specific transactions.
• Overlap: A searcher might bid to censor a competing arbitrage transaction, combining both concepts. However, censorship auctions explicitly monetize exclusion, a more direct threat to liveness.

Protocols can resist censorship auctions through cryptographic and incentive designs:

• Commit-Reveal Schemes: Hiding transaction content until inclusion to make targeted censorship impossible.
• Threshold Encryption: Using schemes like time-lock puzzles or SGX to obscure transactions until a block is proposed.
• Proposer-Builder Separation (PBS): Separating block building from proposing can isolate and expose censoring builders.
• Enshrined Ordering Rules: Protocol-level rules (e.g., first-come-first-served) that override a builder's ability to censor.

The concept gained prominence as a theoretical risk in Ethereum's PBS roadmap. It highlights the tension between decentralization and efficiency. Proponents of free markets argue it's a transparent price discovery mechanism for censorship. Critics argue it fundamentally breaks the credibly neutral base layer, legitimizing a tool for state-level or corporate coercion on-chain. The debate centers on whether this is a bug to be solved or a feature of a free market for block space.

A censorship auction is a protocol-level game where validators or block builders submit bids. They can bid to include a censored transaction (a pro-inclusion bid) or bid to exclude a specific transaction (a pro-censorship bid). The highest collective bid wins, determining the block's content. This creates a verifiable, on-chain cost for censorship, making it economically irrational for validators to collude without compensation.

The primary goal is to mitigate transaction censorship in decentralized networks. By forcing censors to pay for exclusion, it:

• Increases the cost of malicious censorship.
• Creates a revenue stream for honest validators who resist it.
• Provides cryptoeconomic guarantees that censorship will be expensive and visible on-chain, moving beyond social consensus.

A practical precursor is the MEV-Boost relay, which acts as a trusted intermediary. While not a full auction, it demonstrates the tension. Relays can censor transactions by refusing to forward blocks containing them. A censorship auction protocol would formalize this, allowing builders to bid against the relay's censorship to have their block (with the transaction) considered by validators.

The auction design defines two competing bid pools:

• Pro-inclusion bids: Submitted by users or builders who want a specific transaction included. The bid is a bounty for honest validators.
• Pro-censorship bids: Submitted by entities wishing to block a transaction. This is the "cost" they must pay to censor. The side with the higher total bid dictates the block's composition, with the winning bid distributed to the opposing side's bidders.

This mechanism transforms censorship from a social attack into a financial one. Security is derived from the Maximum Extractable Censorship (MEC) concept—the maximum amount a censor is willing to pay. The protocol is secure if the cost to censor exceeds the censor's MEC. It aligns validator incentives with protocol liveness, as they profit by enforcing the auction's outcome.

Key challenges include:

• Bid liquidity and timing: Ensuring sufficient bids can be assembled within a block time.
• Collusion risk: Large validators could manipulate bids.
• Complexity: Adds significant protocol and user experience complexity compared to social slashing.
• Wealth concentration: Could favor well-funded actors, though the auction's openness is a transparency benefit.

A proposed enhancement to proposer-builder separation where validators can attach an inclusion list of transactions that must be in the final block. Builders then bid in an auction for the right to fill the remaining block space. This creates a direct censorship auction: builders must pay a premium for the privilege of potentially excluding the listed transactions, financially disincentivizing censorship.

A design where users submit transactions with a commitment to a future block. Block producers then bid in an auction for the right to include that commitment in a specific future slot. The winning bid is held in escrow and is only paid out if the producer successfully includes the actual transaction when it is revealed. This auction directly prices and penalizes the failure to include (i.e., censor) the committed transaction.

Censorship auctions can secure cross-chain bridges and rollup sequencers. For example, a bridge's watchers or a rollup's sequencer might be required to participate in a periodic auction for the right to order transactions. A party wishing to censor a cross-chain message would need to consistently win these auctions, creating a persistent and transparent cost for sustained censorship, making it economically non-viable.

Censorship auction mechanisms are themselves subject to governance. For instance, parameters like auction frequency, minimum bid, and slashing conditions are set by protocol upgrades (e.g., Ethereum EIPs). This context highlights the ongoing research and development needed to balance censorship resistance with network efficiency and validator economics.

A cryptographic technique used in many auction designs to prevent frontrunning and ensure fairness. In a censorship auction, bidders (those wanting a transaction included) would:

• Commit a hash of their bid and identity.
• Reveal the actual bid details after a set period. This prevents other participants from seeing and outbidding a valuable transaction inclusion request during the auction itself, which is critical for maintaining the auction's integrity and security.

A core principle for blockchain protocols, stating that the system's rules must not discriminate for or against any specific participant or outcome. Censorship resistance is a key component of credible neutrality. Censorship auctions are a cryptoeconomic mechanism designed to enforce this principle by making censorship expensive and transparent, thereby credibly committing the network to neutrality even when powerful economic actors (like large MEV searchers) might prefer otherwise.

A complementary anti-censorship tool where validators are required to include a list of pending transactions in the next block they propose. Unlike a censorship auction (a market-based incentive), an inclusion list is a protocol-enforced rule. It acts as a backstop guarantee. Some designs combine both: auctions provide a primary, efficient market for inclusion, while inclusion lists serve as a fallback mechanism if the auction fails or censorship attempts become systemic.