Dangerous Precedent: Treasury Department Adds Tornado Cash to US Sanctions Blacklist
The U.S. Treasury Department’s Office of Foreign Assets Control took dramatic and unprecedented action on Monday, adding Ethereum coin mixer Tornado Cash and associated addresses to its List of Specially Designated Nationals and Blocked Persons (SDN) sanctions list.
Treasury claims it is going after criminals who allegedly used the service to launder $7 billion in crypto since 2019, but this affects every user of the service, including innocent investors and users. Those on the SDN list can have their property and funds frozen, and it prohibits anyone from accessing or transferring it. This is normally only used against hostile foreign nations, terrorists, narco kingpins and “enemy” oligarchs. This is the first time we could find that an entire technology protocol has been put on the SDN list, instead of an individual, criminal group or nation.
From the Defi Education Substack:
“This means that it is now illegal for US persons to withdraw from Tornado Cash. It is also illegal to exchange tokens which were in Tornado Cash for assets of value, including the underlying token or fiat in the case of wrapped / fiat backed tokens.
“In respect of custodial tokens (WBTC, USDC, USDT) we expect the issuers to take all technical steps to prevent anyone from moving these assets on the blockchain.”
the US is willing to use its highest level of economic sanctions usually reserved for foreign powers and extremely dangerous people against a privacy product in crypto
if you are a US person, any interaction with Tornado Cash is probably illegal - including Gitcoin donations, working for the project, running or downloading its software, visiting its website, and depositing/withdrawing from smart contracts
all assets in Tornado as of August 8th are tainted. Tether, Circle, and BitGo will refuse to redeem these tokens. It is likely that the tokens will be withdrawn anyway and dumped into liquidity pools. Liquidity Providers will be left holding the bag as the funds will likely be ‘traced’ into the pool
there is a small risk of DEX pools for these tainted assets being blacklisted in their entirety out of an abundance of caution by the issuers
US persons running Ethereum mining or staking operations are probably at legal risk and these businesses will go offshore
Legitimate investors use Tornado Cash to protect their privacy in the crypto market. Using a crypto mixer like Tornado allows users to mask personal details of a public crypto wallet, anonymizing the funds. We believe this is a dangerous escalation and expansion of Treasury’s nuclear option that is rife for abuse by zealous regulators. These restrictions affect all users, and legal intent is not a defense. But, Crypto mixers are simply neutral tools. Source code is free speech, as ruled by federal case precedents. Government is now targeting software that exists on a peer-to-peer network on the Internet.