Ordering Power is Sanctioning Power: Sanction Evasion-MEV and the Limits of On-Chain Enforcement

• URL: http://arxiv.org/abs/2603.27739v1
• Date: Sun, 29 Mar 2026 15:30:50 GMT
• Title: Ordering Power is Sanctioning Power: Sanction Evasion-MEV and the Limits of On-Chain Enforcement
• Abstract summary: On public blockchains a freeze is merely an ordinary transaction that must compete for execution priority.<n>We identify a fundamental gap between contract-layer authority and consensus-layer enforcement.<n>To quantify this vulnerability, we construct the first comprehensive dataset of on-chain sanctions enforcement.
• Score: 11.468852080105924
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: Centralized stablecoins such as USDT and USDC enforce financial sanctions through contract-layer blacklist functions, yet on public blockchains a freeze is merely an ordinary transaction that must compete for execution priority. We identify a fundamental gap between contract-layer authority and consensus-layer enforcement: when a sanctioned entity's transfer and the issuer's freeze race for inclusion in the same block, the outcome is determined not by regulatory mandate but by the economically motivated ordering decisions of block producers. We term the resulting value extraction Sanction-Evasion MEV (SE-MEV). To quantify this vulnerability, we construct the first comprehensive dataset of on-chain sanctions enforcement and evasion for Ethereum-based USDC and USDT (Nov 2017-Aug 2025), covering over $1.5 billion in frozen assets. We find that 7.3% of sanctioned USDT addresses and 18.7% of sanctioned USDC addresses were drained to zero balances before enforcement took effect, and document a clear escalation trajectory-from issuer-side out-of-gas failures, to public gas auctions, to private order flow, to direct proposer bribery. We further develop a game-theoretic model that yields three results: (i) compliant issuers cannot rationally stay outside the MEV market; (ii) fixed participation costs concentrate evasion among specialized, MEV-aware actors; and (iii) the implicit MEV tax extracted by block proposers grows without bound as regulatory penalties intensify, creating structural incentives for issuers to vertically integrate into block-building infrastructure. Our findings demonstrate that on any blockchain where ordering power is allocated by economic incentives, ordering power is sanctioning power-and contract-level authority alone cannot guarantee enforcement.

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