Enforcement Speeds In DeFi: Limits to a Race Against Time

Abstract

Retrospective blacklist enforcement faces structural disadvantages in permissionless systems: adversaries create and fund wallets faster than enforcement can investigate, designate, and coordinate freezes, an asymmetry that speed improvements alone do not resolve. We document this using the complete population of 173 OFAC-sanctioned Ethereum wallets. Two enforcement failures emerge: pre-blacklist drainage and post-blacklist persistence. Only 1.47\% of blacklisted balances remain frozen. A race-condition model shows these failures are architectural rather than operational: the investigation window gives adversaries a head-start that speed improvements alone do not close. A complementary formal analysis shows that even zero investigation lag leaves enforcement incomplete: transaction graph tracing grows more costly than address creation.

Keywords: Anti-Money Laundering, Blockchain Regulation, Decentralized Finance, Sanctions Enforcement, Regulatory Compliance JEL Classification: G28

JEL Classification: G28, K22, K42, F38, O33