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Founder of Tornado.cash's GitHub account suspended! How will OFAC sanctions affect DeFi and miners?

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Founder of Tornado.cash

The Office of Foreign Assets Control (OFAC) of the United States has sanctioned the addresses and websites associated with the privacy-focused Ethereum mixer Tornado.cash. Following this, the founder's GitHub account has also been banned. DeFi Education has explained potential legal implications of OFAC sanctions, warning that a significant amount of user funds may become inaccessible and miners could face unexpected repercussions.

Tornado.cash Founder's GitHub Account Suspended

Shortly after OFAC announced sanctions, Tornado.cash founder Roman Semenov stated on Twitter that his GitHub account had been suspended. In response to this puzzling action, he questioned:

"Is compiling open-source code illegal now?"

Additionally, Yearn developer Banteg also mentioned on Twitter that USDC issuer Circle had frozen around $75,000 worth of USDC belonging to Tornado users. This action implies that individuals who deposited USDC into Tornado.cash may not be able to withdraw their funds.

According to a report by the external news outlet The Block reported, Circle stated in an email: "Circle is a regulated company and complies with sanctions requirements. The current issue has been resolved, and addresses associated with Tornado.Cash designated by OFAC have been blocked."

Impact of OFAC Sanctions on DeFi

Facing the sudden OFAC sanctions, DeFi Education researcher BowTiedIguana explained the severity of the situation on Twitter and outlined possible legal violations.

As a branch of the U.S. Department of the Treasury, OFAC is responsible for enforcing economic and trade sanctions against foreign individuals and organizations, including terrorists, oppressive officials, and international drug traffickers.

OFAC maintains a SDN Specially Designated Nationals and Blocked Persons list, and any transactions with individuals, companies, or countries on this list by U.S. persons are illegal. Following OFAC's sanction on Tornado.cash, the related addresses were all added to the SDN list.

Based on data compiled by BowTiedIguana through Etherscan, these addresses hold a total of $437 million in stablecoins, ETH, and WBTC, including a significant amount of user assets.

Any transactions with these addresses or using Tornado.cash may constitute a violation. According to the Code of Federal Regulations, civil penalties could reach millions of dollars, and individuals could face up to 30 years in prison.

Therefore, BowTiedIguana urged token issuers to use technology to prevent anyone from transferring or redeeming assets from accounts listed on the SDN list, such as blacklisting accounts through smart contracts, to prevent inadvertent violations.

Currently, Circle has taken action, while USDT issuer Tether and WBTC issuer BitGo have not provided explanations.

Furthermore, transactions included in blocks verified by miners that involve addresses on the SDN list may also be considered illegal. However, without prior legal precedents, the legality of such actions remains uncertain.

"If you're a U.S. individual holding funds in Tornado: don't break the law, it's not worth it for that money," BowTiedIguana concluded.

Coin Center's Concerns

In response to this event, blockchain policy advocacy organization Coin Center also expressed their views, stating that smart contracts are not individuals but software built on Ethereum. Those affected by sanctions are not specific bad actors but all Americans who wish to use automated tools to protect their privacy when transacting online. If the Treasury Department intended to sanction those actively maintaining or promoting Tornado.cash, that would be a different matter. However, the SDN list merely marks a URL and Ethereum contract addresses.

Coin Center also shared a similar view to BowTiedIguana. Due to the nature of blockchain transactions, U.S. individuals receiving transfers to Tornado.cash addresses may not be able to reject the transaction, but this action could technically violate OFAC rules.

"OFAC's specific actions raise serious constitutional concerns because it doesn't prohibit the ability of a non-U.S. person to use the financial system; it effectively prohibits all Americans from using a specific open-source software tool," said Jerry Brito, executive director of Coin Center.

Gitcoin Expresses Regret

The open-source software funding platform Gitcoin has suspended grants to Tornado.cash following the incident. However, they also emphasized the importance of privacy tools for all law-abiding citizens of the metaverse and expressed regret at seeing it sanctioned by U.S. policy.