REGULATION

Tornado Cash supporter's appeal rejected, U.S. judge rules Treasury sanctions not overstepping.

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Tornado Cash supporter

Perhaps in the future, public blockchains and DeFi protocols claiming to be "permissionless" may no longer be appropriate. While users may have technical freedom to access the protocols, they may potentially violate U.S. sanctions regulations.

Tornado Cash Controversy Review

Since August 2022, the privacy protocol Tornado Cash has been embroiled in a series of regulatory events, sparking significant controversy in the crypto space:

  • August 8: Tornado.cash was sanctioned by the U.S. Office of Foreign Assets Control (OFAC)

  • August 9: Tornado.cash founder's GitHub account was suspended

  • August 12: Developer Alexey Pertsev was arrested

  • August 20: Mining pools and protocols began cooperating with reviews, halting the processing of related transactions

  • September 14: The U.S. Treasury Department responded, agreeing to consider individual transactions, stating that user transactions not involving sanctionable behavior could apply to retrieve withheld funds

However, supporters of crypto like Coinbase attempted to challenge the U.S. Treasury's sanction on Tornado in court, only to be rejected by the judge.

U.S. Court Rules: Treasury's Sanction on Tornado Not Unauthorized

According to legal documents, Coinbase argued that the Treasury's "sanctioning of smart contract code" was unauthorized, emphasizing that smart contracts are a crucial technology in the crypto space for applications like automated exchanges, and similar sanctions could deter public investment in the crypto space.

However, U.S. District Judge Robert Pitman rejected this motion, stating that OFAC classified smart contracts as property, aligning with existing regulations, and

he disagreed with the plaintiff's characterization of Tornado Cash as "software":

Tornado Cash has a founder, developers, and a DAO managing the platform behind it; it is more akin to an association and an entity that OFAC can designate for sanctions under the law.

Coinbase's Chief Legal Officer Paul Grewal tweeted that they will appeal separately:

We still believe that questioning OFAC's sanction on Tornado Cash is right, and we understand that litigation will have to go through the Fifth Circuit Court of Appeals to resolve, and we will continue to support.