OFAC Backtracks (Somewhat) on Tornado Cash Sanctions

The Breakdown


First, one of the most significant tipping points in the regulatory discussion this year happened when the office of foreign asset control or ofac sanctioned tornado cash. Tornado cash is a mixing service that adds privacy to crypto transactions by making it difficult to see inputs and outputs. The sanctions brought up some serious questions. In fact, I would argue that they were one of the most galvanizing actions the government has ever taken against crypto. One of the big questions was did ofac actually have the authority to sanction a smart contract. This was completely new territory and caught a lot of people off guard. We've seen sanctions in the past, but they've always been for individuals, but not for entire protocols or smart contracts. Another question was even if effect did have that authority. Is it technically feasible in the case of digital asset addresses are of course public, meaning that people could be sent tainted assets against their desires? That is in fact exactly what happened in the hours after the sanctions were announced. Last week, I had David Hoffman from bankless on the show to discuss the lawsuit that he coin center and others were party to against the treasury. The lawsuit was focused on the compliance requirements now placed upon him for life because he was dusted with tornado cash related eth as a prominent public figure. Anyway, this is obviously been a situation that people are watching closely, and this week we got some updates. The Department of the Treasury who runs and who is responsible for maintaining the sanctions list has delisted and re designated tornado cash. This is perhaps in response to legal challenges, but it also could be a measure to turn up rhetoric regarding North Korea. The first sanctions happened in August and again the big issue was that the quote unquote designated person being sanctioned appeared to be the actual smart contract that governs the operation of tornado cash rather than a person or organization as required theoretically by sanctions legislation. In what appears to be a step to rectify the situation, the treasury has clarified that the organization being sanctioned is the tornado cash organization. The treasury goes on to describe the organizational structure consisting of tornado cash's founders and developers, as well as the Dow formed around the service.

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