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There's really no point in checking for destinations called "localhost" because there is nothing stopping people creating other DNS entries which point to 127.0.0.1. The right fix for this is https://github.com/matrix-org/synapse/issues/3953. Blocking localhost, on the other hand, means that you get a surprise when trying to connect a test server on localhost to an existing server (with a 'normal' server_name).