It was the founding promise of Ethereum and the entire smart contract revolution. The idea was simple and powerful: create agreements that were self-executing, unstoppable, and absolutely immutable. Once deployed, no one could change the rules, not even the creators. This was supposed to usher in a new era of trustless interaction.
But reality, as it often does, turned out to be much messier. The infamous DAO hack in 2016 showed the world that immutable bugs are a catastrophic problem. We quickly learned that in a world of evolving technology and human error, the inability to fix or improve code isn’t a feature; it’s a liability. This created the great paradox of smart contract development: how do you allow for necessary changes without destroying the core principle of decentralization?
This tension between immutable ideals and the practical need for control isn’t just an issue for application developers. It mirrors a deeper, structural challenge at the very heart of the network’s transaction supply chain. It forces us to ask not only how we govern our applications, but also how we govern our core infrastructure. This leads to a surprisingly related question for the operators who run this infrastructure: How to earn revenue by operating an MEV-Boost Relay?
Let’s unpack the complex legal, economic, and philosophical layers of this challenge, from the application code all the way down to the network’s foundation.
The Immutability Myth: Why Upgrades Became Necessary
Imagine a team of developers builds a groundbreaking decentralized finance (DeFi) protocol. Millions of dollars in user funds are locked in their smart contracts. Everything works perfectly for six months, until a researcher discovers a subtle, critical vulnerability that could allow an attacker to drain every last dollar.
In a world of pure immutability, the team’s options are grim. They can’t patch the code. Their only choice is to publicly disclose the vulnerability and hope that users can withdraw their funds in time, creating a chaotic and potentially disastrous race against hackers.
This is why smart contract upgradability became a standard practice. Developers realized they needed a way to fix bugs and roll out new features. The most common way to achieve this is through a “proxy pattern.”
- The Logic: Instead of having users interact directly with the main contract, they interact with a simple, unchangeable “proxy” contract.
- The Function: This proxy contract’s only job is to forward all calls and transactions to the real logic contract, which sits behind it.
- The Magic: The address of the logic contract is a variable that the project’s owners can change. When they need to upgrade, they simply deploy a new, improved version of the logic contract and update the address in the proxy. Users continue interacting with the same unchanging proxy address, but their calls are now routed to the new code.
This elegant solution provides the flexibility of traditional software development while maintaining a stable, persistent identity for the protocol on the blockchain. But this power introduces a host of thorny legal and economic questions.
The Legal Quagmire: When “Code is Law” Meets Actual Law
The moment you introduce an admin key—whether it’s held by a single developer, a multi-signature wallet controlled by the team, or even a DAO—you poke a hole in the “code is law” argument. The contract is no longer a purely autonomous agent; it has an administrator.
H3: The Question of Contractual Integrity
From a legal perspective, is an upgradeable smart contract a binding, immutable agreement, or is it more like a software service with terms and conditions that can be changed at the administrator’s discretion? If you deposit funds into a lending protocol, your agreement is not just with the code as it exists today, but with any potential future version of that code. This creates a massive legal grey area. Courts worldwide are still grappling with how to interpret these new kinds of dynamic agreements.
H3: The Nightmare of Liability
Upgradability introduces a clear chain of command, and with it, a potential chain of liability.
- In an immutable contract: If a user loses money due to a bug, the legal argument is murky. One could argue for “caveat emptor” (buyer beware), as the code was open for all to inspect.
- In an upgradeable contract: The argument shifts. If the development team holds the keys to upgrade the contract, did they have a fiduciary duty to patch a known vulnerability? Could they be held liable for negligence if they failed to act? Conversely, if they introduce a new bug in an upgrade, their liability is even more direct.
This moves smart contract disputes out of the realm of pure code and squarely into the familiar territory of corporate and consumer law.
The Economics of Trust and Control
Beyond the legal implications, the decision to make a contract upgradeable has profound economic consequences that create a delicate balance between developers and users.
- The Developer’s Incentive: For developers, the economic case for upgradability is overwhelming. It allows them to protect the protocol’s value from catastrophic bugs and to add new features that can generate more revenue. It turns a static product into an evolving service.
- The User’s Risk: For users, upgradability introduces centralization risk. They must trust that the entity holding the admin keys will act in their best interest. A malicious team could use the upgrade function to insert a backdoor and steal user funds—the ultimate “rug pull.”
“An upgrade key is a double-edged sword: it’s a tool for developers to protect users, but it’s also a backdoor that requires users to trust developers.”
This trust (or lack thereof) is an economic variable. Protocols with strong, decentralized governance over their upgrade keys (like a robust DAO with a timelock) can command more user confidence and, therefore, more Total Value Locked (TVL).
The Parallel Challenge: Governance at the Infrastructure Layer
This intense debate around centralization, trust, and governance isn’t unique to the smart contracts we use every day. It’s happening at the deepest, most foundational layer of the network: the transaction supply chain.
The very same questions we ask about a protocol’s upgrade key, we must also ask about the critical infrastructure that processes our transactions. A centralized point of failure is a risk, whether it’s at the application layer or the base layer. This brings us to the world of MEV (Maximal Extractable Value) and the crucial role of network relays.
The Relay’s Role and How to Earn Revenue by Operating an MEV-Boost Relay
MEV refers to the profit that can be made by strategically ordering transactions in a block. After Ethereum’s move to Proof-of-Stake, a marketplace system called MEV-Boost was created to allow validators to source the most profitable blocks from expert, third-party “builders.”
The MEV-Boost Relay is the trusted intermediary in this marketplace. It receives blocks from builders, verifies their validity, and passes them to validators without revealing the contents prematurely. The entire system relies on the relay’s neutrality and reliability.
Just as users of a DeFi protocol must trust the holders of an upgrade key, the entire Ethereum network must trust that relays will not censor transactions or act maliciously. The parallels are striking.
H4: The Centralization Risk in Relays and How to Earn Revenue by Operating an MEV-Boost Relay Sustainably
If only one or two major relays dominate the market, they become centralized points of failure and control. A government could potentially force them to censor transactions from certain applications (as was seen with Tornado Cash), striking a blow to the network’s core value proposition of credible neutrality.
So, how to earn revenue by operating an MEV-Boost Relay in a way that supports decentralization? The business model is not about taking a cut; it’s about providing trusted services built around the data flow.
- Data Monetization: Relays have a high-level view of network activity. They can sell this anonymized, aggregated data to research and trading firms, providing the revenue needed to run their high-performance infrastructure.
- Private Order Flow: Sophisticated trading firms pay for private channels to submit their transactions, protecting their strategies. A relay can sell this access as a premium B2B service.
The revenue earned is what funds the operational costs and provides the incentive for more independent operators to enter the market. A healthy, competitive market of many relays is the ultimate defense against infrastructure-level censorship, just as a strong DAO is the defense against malicious application-level upgrades.
The legal and economic frameworks we design for smart contract governance—timelocks, transparent DAO voting, public disclosure—are the very same principles we need to apply to ensure our core infrastructure remains healthy, decentralized, and trustworthy.
Frequently Asked Questions (FAQ)
Q1: What is a proxy contract in the simplest terms? Imagine you have a P.O. Box at the post office that never changes (the proxy). The post office can be instructed to forward the mail from that P.O. Box to your home, your office, or a vacation address (the logic contracts). A proxy contract is like that permanent P.O. Box for a dApp, allowing the developers to change where the “mail” gets delivered without you having to change the address you send it to.
Q2: Is an upgradeable smart contract inherently less secure than an immutable one? Not necessarily. It trades one type of risk for another. An immutable contract has a higher risk of a permanent, unfixable bug. An upgradeable contract has a higher risk of malicious or incompetent administration. A well-governed upgradeable contract with a DAO and a timelock is often considered safer in practice than an immutable one with a hidden flaw.
Q3: Why is running an MEV-Boost Relay considered a critical infrastructure play? Relays are the switchboard operators for a significant portion of Ethereum’s transaction flow. They connect the block builders (who assemble transactions) with the validators (who secure the network). If they fail or act maliciously, it can disrupt the entire block production process, making them a foundational piece of the network’s architecture.
Q4: What’s the biggest legal risk with upgradeable smart contracts today? The biggest risk is regulatory ambiguity. Governments and courts are still deciding how to classify and regulate these entities. A regulator could decide that the holders of an upgrade key are operating as unlicensed financial intermediaries, potentially exposing them to significant legal and financial penalties.
Q5: How does a DAO (Decentralized Autonomous Organization) help make smart contract upgrades safer? A DAO decentralizes control over the upgrade key. Instead of a small team having the power to change the code, that power is given to the community of token holders. Major changes must be proposed and voted on publicly, and often a “timelock” is used, which creates a mandatory delay between a vote passing and the change being executed. This transparency and community oversight make malicious upgrades much more difficult.
