Tornado Cash

Tether says it would not freeze sanctioned Tornado Cash addresses unless instructed by law enforcement

“In our dealings with law enforcement we are sometimes specifically instructed not to freeze addresses as this could alert suspects,” says Tether.

On Wednesday, U.S. dollar stablecoin issuer Tether (USDT) said that it would not freeze smart contract addresses sanctioned by the U.S. Office of Foreign Assets (OFAC) Control’s Specially Designated Nationals and Blocked Persons (SDN) list for cryptocurrency trail-mixer Tornado Cash. In explaining the decision, Tether said: 

“So far, OFAC has not indicated that a stablecoin issuer is expected to freeze secondary market addresses that are published on OFAC’s SDN List or that are operated by persons and entities that have been sanctioned by OFAC. Further, no U.S. law enforcement agency or regulator has made such a request despite our near-daily contact with U.S. law enforcement whose requests always provide precise details.”

Tether pointed out that unilaterally freezing wallet or smart contract addresses could be a “highly disruptive” and “reckless” move. “It could alert suspects of an impending law enforcement investigation, cause liquidations or abandonment of funds and jeopardize further evidence gathering,” the issuer said.

All U.S. persons and entities are prohibited from interacting with the digital currency mixer’s USDC and Ethereum smart contract addresses on the SDN list, subject to stiff criminal penalties for violation. However, Tether is a Hong Kong-based issuer and neither onboards U.S. persons as customers nor conducts business in the United States, although it voluntarily follows certain U.S. regulations as a part of compliance.

Tether also expressed reservations regarding USD Coin issuer Circle’s decision to unilaterally freeze Tornado Cash smart contract addresses earlier this month. “If made without instructions from U.S. authorities, the move by USDC to blacklist Tornado Cash smart contracts was premature and might have jeopardized the work of other regulators and law enforcement agencies around the world,” says Tether. The firm points out that other stablecoin issuers based in the U.S., such as Paxos and Dai, did not freeze any Tornado Cash wallets. The sanctions went into effect on August 8. 

Tether says it won’t freeze sanctioned Tornado Cash addresses unless instructed by law enforcement

“We are sometimes made aware of addresses potentially related to crime and are specifically instructed not to freeze the addresses without the explicit request from law enforcement,” says Tether.

On Wednesday, U.S. dollar stablecoin issuer Tether said that it would not freeze smart contract addresses sanctioned by the United States Office of Foreign Assets (OFAC) Control’s Specially Designated Nationals and Blocked Persons (SDN) list for cryptocurrency trail-mixer Tornado Cash. In explaining the decision, Tether said: 

”So far, OFAC has not indicated that a stablecoin issuer is expected to freeze secondary market addresses that are published on OFAC’s SDN List or that are operated by persons and entities that have been sanctioned by OFAC. Further, no U.S. law enforcement agency or regulator has made such a request despite our near-daily contact with U.S. law enforcement whose requests always provide precise details.”

“Tether pointed out that unilaterally freezing wallet or smart contract addresses could be a “highly disruptive” and “reckless” move. “It could alert suspects of an impending law enforcement investigation, cause liquidations or abandonment of funds and jeopardize further evidence gathering,” the issuer said.

All U.S. persons and entities are prohibited from interacting with the digital currency mixer’s USDC and Ethereum smart contract addresses on the SDN list, subject to stiff criminal penalties for violation. However, Tether is a Hong Kong-based issuer and neither onboards U.S. persons as customers nor conducts business in the United States, although it voluntarily follows certain U.S. regulations as a part of compliance.

Tether also expressed reservations regarding USD Coin issuer Circle’s decision to unilaterally freeze Tornado Cash smart contract addresses earlier this month. “If made without instructions from U.S. authorities, the move by USDC to blacklist Tornado Cash smart contracts was premature and might have jeopardized the work of other regulators and law enforcement agencies around the world,” says Tether. The firm points out that other stablecoin issuers based in the U.S., such as Paxos and Dai, did not freeze any Tornado Cash wallets. The sanctions went into effect on Aug. 8. 

USDC whale holdings percentage lowest in almost two years

USDC tokens held by the largest addresses have dropped to a two-year low as Circle freezes Tornado Cash-related assets.

The percentage of USD Circle (USDC) stablecoins held by major wallet addresses dropped to its lowest point in almost two years as the cryptocurrency market downturn continues.

Cryptocurrency analytics firm Glassnode has released the latest data on USDC metrics, reflecting a recent sell-off of the second biggest U.S. dollar-backed stablecoin by market capitalization.

As Cointelegraph previously reported, sanctions imposed on cryptocurrency mixer Tornado Cash by the U.S. Treasury Department had a marked effect on the capitalization of both USDC and its biggest competitor, Tether (USDT).

While USDT markets saw growth of almost $2 billion in the days following the sanctions, USDC’s market cap shrunk after its issuer Circle decided to freeze some 75,000 USDC tokens held by addresses linked to Tornado Cash.

Related: Independent Tether attestation reveals 58% decrease in commercial paper holdings

Various commentators have suggested that some users shifted funds from USDC to USDT, given the correlation in the decline and growth of the respective stablecoins’ market cap. Data from Glassnode shows that the percent of USDC held by the top 1% of addresses reached a 22-month low of 87.667%.

While on-chain data shows that there has been a sell-off of USDC over the past fortnight, metrics released by Glassnode on Aug. 22 showed that the seven-day moving average of USDC exchange deposits also reached its lowest point since March 2021.

While the market cap of USDC might be down, the stablecoin reached a three year high in terms of weekly mean transaction volume, surpassing the previous high registered in June 2022.

USDC had been touted to contend with USDT as the top stablecoin of 2022 by market capitalization in July 2022, edging to within $11 billion of Tether’s market cap. This percentage has eroded since the Tornado Cash debacle.

Tether remains mute on whether it would blacklist or freeze USDT tokens linked to the sanctioned mixer. Cointelegraph has reached out to the stablecoin operator to ascertain whether it will follow Circle’s lead in freezing assets linked to Tornado Cash addresses, given the potential legal ramifications.

USDC whale holdings percentage lowest in almost two years

USDC tokens held by the largest addresses have dropped to a two-year low as Circle freezes Tornado Cash-related assets.

The percentage of USD Circle (USDC) stablecoins held by major wallet addresses dropped to its lowest point in almost two years as the cryptocurrency market downturn continues.

Cryptocurrency analytics firm Glassnode has released the latest data on USDC metrics, reflecting a recent sell-off of the second biggest U.S. dollar-backed stablecoin by market capitalization.

As Cointelegraph previously reported, sanctions imposed on cryptocurrency mixer Tornado Cash by the U.S. Treasury Department had a marked effect on the capitalization of both USDC and its biggest competitor, Tether (USDT).

While USDT markets saw growth of almost $2 billion in the days following the sanctions, USDC’s market cap shrunk after its issuer Circle decided to freeze some 75,000 USDC tokens held by addresses linked to Tornado Cash.

Related: Independent Tether attestation reveals 58% decrease in commercial paper holdings

Various commentators have suggested that some users shifted funds from USDC to USDT, given the correlation in the decline and growth of the respective stablecoins’ market cap. Data from Glassnode shows that the percent of USDC held by the top 1% of addresses reached a 22-month low of 87.667%.

While on-chain data shows that there has been a sell-off of USDC over the past fortnight, metrics released by Glassnode on Aug. 22 showed that the seven-day moving average of USDC exchange deposits also reached its lowest point since March 2021.

While the market cap of USDC might be down, the stablecoin reached a three year high in terms of weekly mean transaction volume, surpassing the previous high registered in June 2022.

USDC had been touted to contend with USDT as the top stablecoin of 2022 by market capitalization in July 2022, edging to within $11 billion of Tether’s market cap. This percentage has eroded since the Tornado Cash debacle.

Tether remains mute on whether it would blacklist or freeze USDT tokens linked to the sanctioned mixer. Cointelegraph has reached out to the stablecoin operator to ascertain whether it will follow Circle’s lead in freezing assets linked to Tornado Cash addresses, given the potential legal ramifications.

Wife of arrested Tornado Cash dev forbidden to speak with him — Rally organized

Speaking with Cointelegraph, Ksenia Malik stated that Dutch authorities are treating her husband as if he were “were a dangerous criminal” and that the creation of open-source software should never be criminalized.

Ksenia Malik, the wife of Tornado Cash creator Alexey Pertsev, has lashed out at Dutch authorities for treating her husband like a “dangerous criminal” following his arrest last week.

The Dutch Fiscal Information and Investigation Service (FIOD)  arrested Pertsev on Aug. 12 over an alleged use of the Ethereum-based privacy tool to launder money and conceal criminal financial flows.

Speaking to Cointelegraph, Malik confirmed that Pertsev remains in the hands of Dutch authorities and has not had the chance to contact him since he was put behind bars.

“He’s kept in prison as if he were a dangerous criminal,” Malik said, as she expressed her concern that Pertsev was arrested without warning over what she sees as a harmless activity:

“It is very unexpected for me that a person can be arrested for writing open source code.”

Malik said that she can “only guess how he is doing and how difficult it is for him right now,” as the Dutch authorities have completely barred her [or anyone] from any contact with him, not even “one short call.”

Despite Malik feeling helpless in this regard, she isn’t without support. The rally she organized for Aug. 20 has seen numerous individuals getting involved to show support for Pertsev and to stand for developers’ rights to create open-source software.

Decentralized finance (DeFi) aggregator 1inch is one of many who are vocal about the matter, having said that the arrest of Pertsev threatens to “create a dangerous precedent,” as it could “kill the entire open-source software segment” if developers are held responsible for any software they create that is misused by others.

In light of 1inch’s efforts and the broader crypto community, Malik said that she’s “very grateful to everyone who helps and supports my husband,” as it proves that “people really care.”

Malik also hopes that the rally not only draws attention to Pertsev’s injustice but also positively influences public opinion on the nature of open-source code:

“We want to achieve publicity so that as many people as possible know about the arrest and the reasons for its wrongness. This is a serious issue, as every open source developer and many other people can be affected by this accusation.”

However, Pertsev’s arrest isn’t entirely disapproved of. venture capitalist Kevin O’Leary stated in a recent interview that crypto privacy tools like Tornado Cash are a part of a “crypto cowboy” culture that “mess with the primal forces of regulation,” while going on to describe Pertsev’s arrest as a necessary one.

“If we have to sacrifice him, that’s okay, because we want to have some stability in that institutional capital,” he said.

Related: Tornado Cash sanctions will undermine the US and strengthen crypto

Prior to the arrest, the United States Office of Foreign Asset Control barred U.S. residents from interacting with Tornado Cash on Aug. 8 amid increasing concerns that it was being used to launder money. The U.S. Treasury believes Tornado Cash has facilitated more than $7 billion worth of money laundering activity since Pertsev created Tornado Cash in 2019.

Update: Made a correction to a previous inaccurate statement which stated 1inch Network was involved in organizing the rally. 

Ukraine has shown the value cryptocurrency offers to real people

Ukrainian refugees have used cryptocurrency to survive. And contrary to what critics believe, sanctions have prevented Russia from finding much use for crypto.

The world is still struggling to comprehend the geopolitical and human impact of the Ukraine war. With more than 10 million people fleeing their homes and 6 million seeking refuge in foreign countries, it’s been a time to support a sovereign country under attack.

It has also proven to be the moment where cryptocurrency proved its true value to real people. Not as the high-concept tech toy for the wealthy elite as many had previously dismissed it, but rather as an empowering force for good in a dangerously unstable world.

When the Russian invasion began in February, Twitter accounts belonging to the Ukrainian government posted pleas for crypto asset donations. Now, as more than $100 million in crypto donations have already been raised to support the Ukrainian resistance, those of us who have championed crypto as a way of giving ordinary people rather than corporations and governments control over their own money have been vindicated. While the banking financial system has been under sustained attack by Russia, using both military and cyberattacks, this life-saving money has gone directly to those in need via crypto.

Ukraine took a number of measures in an effort to stabilize the banking sector and protect the country’s economy, including suspending foreign cash withdrawals, limiting how much currency can be withdrawn, and banning cross-border forex transactions. Consequently, Ukrainians are turning to borderless and trustless crypto to enable them to either survive in or flee from the war zone. 

Related: The Ukraine invasion shows why we need crypto regulation

We can now see the value of having somewhere safe to store money in a time when the traditional financial system is under threat — a completely separate payment infrastructure that can step in and pick up the slack if the current infrastructure is destroyed in a black swan event. Whether it is a state destroying our ability to pay for goods and services or even a major cyberattack, the blockchain provides a vital backup to halt the destruction of entire economies.

We have witnessed digital currencies being used to quickly transfer cash to those in need from relatives abroad, enabling fleeing refugees to buy crucial goods and services when there is no cash in their ATMs after critical infrastructure has been decimated by relentless Russian attacks. Anyone with a mobile phone and internet access — which has been bolstered by the thousands of Starlink satellite internet dishes generously provided by Elon Musk’s SpaceX — can access their funds via crypto wallets.

Crypto averting sanctions? Think again

Digital currencies have not only shown their worth in helping desperate Ukrainian refugees but also in preventing sanctions from being averted. Contrary to speculation at the onset of the conflict, desperate Russian oligarchs have discovered that crypto is not the safe haven for their funds that they had hoped.

As the United Kingdom’s independent crypto industry association, we called on all of our members and the wider crypto community to take all necessary steps to enforce economic sanctions against Russia through engagement with professional compliance teams, blockchain analytics companies, the National Crime Agency and government experts in illicit finance.

Contrary to the outdated image of crypto as a digital currency favored by criminals, every transaction on the blockchain is, in fact, publicly available, providing a secure and transparent record on a ledger that anyone can see. This publicly available information means that exchanges can use transaction monitoring tools to trace the source of the funds and flag what is coming from blacklisted, sanctioned sources.

The list of blacklisted addresses is in the public domain, which means that exchanges can not only identify and block sanctioned names but also prevent them from opening accounts in the first place.

Lack of liquidity

Contrary to some speculation, if Russia wanted to evade sanctions by converting fiat currency into crypto today, it would be extremely difficult because there is insufficient liquidity in the market to support exchanging its fiat for cryptocurrency at a sufficient scale.

If an oligarch is attempting to convert $1 billion into crypto, they would find that this vast amount of digital currency is simply not available in one place because it is scattered across thousands of marketplaces.

Building digitally from ground zero

The legacy systems upon which our financial markets stand are not going anywhere, and quite rightly, because governments around the world value the safety, predictability and security they offer. But if we could start from scratch, it is likely that we would turn to blockchain technology, which is at the cutting edge of financial technology thanks to its superior efficiency. It does away with all the intermediaries, reduces the time to settle, increases the global reach for sending payments, and reduces costs.

Related: Ukraine has received $37M in tracked crypto donations so far

Big payment providers, which connect the banking world with merchants, have already embraced crypto, providing the ability to pay with digital currencies as an alternative to paying a credit card charge. The cost of these transactions has increased significantly in recent years, and if a company is turning over tens of millions of dollars per year, 2% is a lot of money. If they have another way to pay using crypto for a fee of less than 1%, it is a better choice.

Ukraine’s financial infrastructure may emerge from this tragic war at ground zero, and we may soon witness a modern society rebuilding its economy with a strong blockchain technology element built in. As the shockwaves of this tragic conflict resonate around the world, crypto has risen to the challenge and proven itself a vital source of both financial stability and accountability.

The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Ian Taylor is the executive director of CryptoUK, an independent industry body that exists as a cohesive, credible voice for the evolving United Kingdom digital assets industry. Having spent 20 years in investment banking, he has held many senior roles across trading, treasury and risk management, and is still involved with a major global bank. In his role he has built a community of more than 100 of the most influential industry participants and campaigns for a fit-for-purpose regulatory framework in the U.K., Europe and beyond.

Tornado Cash sanctions will ultimately undermine the US and strengthen crypto

Like any aging empire, America is reacting to its competition.

The United States government’s sanctioning of the open-source code that makes up the Tornado Cash privacy protocol may be shocking, but it’s not surprising. America has been tightening its grip over the global financial system for decades ostensibly to cut down on bad behavior but also to project power abroad.

Economic sanctions, like the ones enforced by the aptly named Office of Foreign Assets Control, are a powerful weapon. The agency’s website states that it “enforces economic and trade sanctions based on U.S. foreign policy and national security goals.” It does this to fight drug dealers, terrorists, and “other threats to the national security, foreign policy or economy of the United​ States.”

Scary stuff, particularly when enforced by the issuer of the global reserve currency. But therein lies the rub because the more the U.S. weaponizes access to the dollar, the greater the incentive for every other country to find an alternative. One likely winner from this dynamic is Bitcoin (BTC). To see why, we need to study the architecture of money.

Fiat currencies like the U.S. dollar have no inherent transfer mechanism. Large payments can only be made through the banking system, and banks need government charters to operate. This symbiotic relationship enables governments to not only control the issuance of their money, but also access to it. For the issuer of a reserve currency, monetary censorship becomes a powerful weapon, arguably as destructive as bombs and bullets.

Related: Tornado Cash shows that DeFi can’t escape regulation

Bitcoin is different because it has its own censorship-resistant payment system. Anyone can make payments to anyone else — with or without the involvement of a licensed intermediary. Governments can still wield power over individual exchanges, custodians, or miners, but they can’t stop the protocol or the community that runs it.

Bitcoin is also apolitical in ways that fiat currencies can never be. Along with ever stricter sanctions regimes, the U.S. has recently taken the drastic step of freezing the foreign exchange reserves of Russia and Afghanistan. Regardless of one’s opinion of the legitimacy of such acts, they drive home the point that dollar reserves are only useful so long as their owners stay on America’s good side.

A critic could argue that the sanctioning of Tornado Cash proves cryptocurrencies are not immune from politics. Indeed, the U.S. has been sanctioning Ethereum and Bitcoin addresses for years. What makes crypto unique is the fact that the decentralized protocols in question don’t care, at least not in a way a bank might.

After all, the permissionless nature of these networks means that anyone can do anything, including continuing to process transactions for sanctioned addresses. That doesn’t mean that a European miner or South American exchange wants to upset Washington, but it does mean that they could if they had to. This optionality may come in handy in a crisis.

None of this means that global adoption of Bitcoin is imminent. The infrastructure remains raw, and most governments remain cautious, in part because censorship resistance also challenges their monetary grip at home. But the more globalization reverses, and the more America tries to enforce her will on other countries, the greater the need for a backup plan.

Related: Tornado Cash DAO goes down without explanation following vote on treasury funds

This relatively new threat to the dollar is one explanation for why America refuses to pass sensible crypto regulations, despite a thriving domestic industry. The more the U.S. normalizes Bitcoin as a store of value internally, the higher the odds that it gets adopted as a reserve asset abroad. If it’s good for Blackrock, then why not a central bank?

Countries don’t need to put their entire reserves in Bitcoin to benefit from its utility. Given its relative youth and volatility, it would be risky to own too much — just ask El Salvador. But as a “break-glass-in-case-of-emergency” reserve asset, a little bit would go a long way.

Like any aging empire, America is likely to react to this competition. If other countries do start adopting Bitcoin, then Washington may become even more Draconian with the use of sanctions, trying to blacklist coins held by regimes it doesn’t like, and punishing miners who process certain transactions. But that would mostly hurt the American crypto industry while reinforcing the need for a global alternative.

Historically, the most popular reserve currencies have been issued by countries with trustworthy legal systems. The more arbitrary American sanctions become, the less trust others will have in its money. Bitcoin always does what it’s supposed to, making it an ideal reserve currency.

The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Omid Malekan is an adjunct professor at Columbia Business School and the author of Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets, and Platforms.

Tornado Cash ban could spell disaster for other privacy protocols — Manta co-founder

The ban of Tornado Cash in the U.S. could have ripple effects across Web3 protocols, particularly ones that offer privacy on the blockchain.

There are mounting concerns that recent United States government sanctions against Tornado Cash will become a “slippery slope” for Web3 privacy that could eventually make the entire space “meaningless.”

Speaking to Cointelegraph, Shumo Chu, co-founder of privacy protocol Manta Network, expressed worry that the strict sanctions against Tornado Cash could have a knock-on effect on every Web3 protocol including ones providing privacy.

Chu is one of the co-founders of Polkadot-based Manta Network, a layer-1 privacy protocol that enables private transactions in decentralized finance (DeFi).

Tornado Cash is an Ethereum privacy protocol that anonymizes coin transactions. These protocols are similar to Monero (XMR) and Zcash (ZEC), which mask sender and receiver data of crypto transactions.

Earlier this month, the U.S. Treasury Department effectively barred U.S. residents from using the protocol and placed 44 Ether (ETH) and USD Coin (USDC) addresses associated with it on the list of Specially Designated Nationals on Aug. 5.

Chu expressed worry that other privacy protocols like his could wind up in the same crosshairs, which would add more censorship to the point it would “essentially make the entire Web3 space meaningless.”

Chu acknowledged that the U.S. government ban was done ostensibly in the interest of national security as the North Korean hacker group Lazarus has been known to use Tornado to launder the funds it steals.

But, in banning the protocol, Chu questioned regulators’ understanding of how decentralized systems based on open-source code can be located and operated anywhere:

“It’s quite possible regulators just don’t understand distributed blockchain technology and how open source code can be anywhere. [They] may have actually thought Tornado Cash developers deliberately helped North Korean hackers.”

Last week, Dutch police arrested a Tornado Cash developer they suspect is involved in money laundering.

Chu added that there have been instances in the past where cryptography developers have been arrested, such as Ethereum developer Virgil Griffiths, but that banning a protocol is “a new paradigm” signaling the government is attempting to put a reign on code and mathematics itself:

“They are banning the protocol instead of some people. Essentially this is a piece of code from the Ethereum blockchain.”

However, Chu believes that privacy protocol developers ultimately have the upper hand. He said that since privacy developers are distributed around many jurisdictions outside of the U.S. government’s reach, noting:

“If the US tries to implement draconian measures over privacy devs, it won’t go very well for them.”

As a privacy protocol developer himself, Chu notes there is a narrative being set that privacy is only for bad actors, arguing that “normal people use it too.”

Related: Tornado Cash shows that DeFi can’t escape regulation

He added that there should be a push to promote good use cases as well because, as he said, “the nature of the system is permissionless, so there will be people gaming the system.”

His views echo those of Kraken CEO Jesse Powell, who told Bloomberg TV on Tuesday that the sanctions against Tornado were “unconstitutional” and that “people have a right to financial privacy.”

In Chu’s eyes, the barriers to entry into privacy protocols should be low so that normal people can use them every day. However, his ideal could be threatened by further sanctions of privacy protocols.

USDT market cap up by $2 billion following Tornado Cash debacle

Tether’s market capitalization has reversed a three-month downtrend while USDC sees a drop in value after the U.S. imposed sanctions against Tornado Cash.

The market capitalization of Tether (USDT) tokens has increased by nearly $2 billion since the U.S. Treasury Department imposed sanctions on cryptocurrency mixer Tornado Cash.

The Office of Foreign Asset Control essentially barred Americans from using Tornado Cash on Aug. 8, blacklisting 44 USD Coin (USDC) and Ether (ETH) addresses connected to the service to a list of Specially Designated Nationals and Blocked Persons (SDNs).

OFAC alleges that Tornado Cash was used by individuals and criminal organizations to launder over $7 billion worth of cryptocurrency since 2019. Funds linked to North Korean Lazarus Group hackers are also believed to have been mixed through Tornado Cash.

Circle, the issuer of stablecoin USDC, went as far as freezing assets linked to the 44 addresses flagged by OFAC. The move by Circle was warranted, given the potential ramifications of continuing to interact with the addresses.

Penalties for noncompliance range from fines of $50,000 to $10,000,000 and 10 to 30 years imprisonment. Circle froze 75,000 USDC worth of funds linked to the accounts in question in an effort to be fully compliant with the Treasury ruling.

Interestingly, the market cap for USDC has declined by some $2 billion from highs of around $55 billion over the past month to its current capitalization of around $53 billion. The USDC decline has been noted by various cryptocurrency market participants on social media, with a correlation being drawn between the decline of the USDC market cap and the increase in the capitalization of USDT.

One user on Twitter suggested that users transferred around $1.6 billion worth of USDC to USDT following the Tornado Cash sanctions:

Paolo Ardoino, the chief technology officer of Tether and cryptocurrency exchange Bitfinex, also teased the “flipping” of USDC-USDT on Twitter. Both USDC and USDT have the ability to freeze funds through Ethereum smart contract functionality — yet the former was the only issuer to announce asset freezes on the blacklisted addresses.

Cointelegraph has reached out to Tether to ascertain whether it intends or is expected to freeze USDT held by the blacklisted addresses linked to Tornado Cash. 

Both Circle and Tether have also assuaged the wider cryptocurrency community that both stablecoin platforms would support Ethereum’s upcoming Merge to its proof-of-stake Beacon Chain, which is touted to take place in September.

Coin Center may challenge US Treasury’s sanctions on Tornado Cash in court

“By treating autonomous code as a ‘person’ OFAC exceeds its statutory authority,” said Coin Center’s Jerry Brito and Peter Van Valkenburgh.

United States-based crypto policy advocacy group Coin Center said it intended to “pursue administrative relief” for individuals affected by Tornado Cash sanctions imposed by the Treasury Department’s Office of Foreign Asset Control, or OFAC.

In a Monday blog post, Coin Center executive director Jerry Brito and director of research Peter Van Valkenburgh alleged OFAC “overstepped its legal authority” when it named cryptocurrency mixer Tornado Cash and 44 associated wallet addresses to its list of Specially Designated Nationals, or SDNs, on Aug. 8. The directors claimed Treasury’s actions could have potentially violated U.S. residents’ “constitutional rights to due process and free speech” and they were exploring bringing the matter to court.

“By treating autonomous code as a ‘person’ OFAC exceeds its statutory authority,” said Brito and Van Valkenburgh.

According to the pair, Coin Center will first engage with OFAC to discuss the situation in addition to briefing members of Congress. The advocacy group will then help individuals with funds trapped on any of the 44 USD Coin (USDC) and Ether (ETH) addresses connected to Tornado Cash by applying for a license to withdraw their tokens. Following these actions, the organization will begin exploring challenging the sanctions in court.

Brito and Van Valkenburgh claimed that unlike OFAC’s sanctions against cryptocurrency mixer Blender.io in May — “an entity that is ultimately under the control of certain individuals” that better fit the definition of SDNs — “it can’t be said that Tornado Cash is a person subject to sanctions.” According to the Coin Center executives, this was due to the ETH addresses for the mixer smart contract:

“The Tornado Cash Entity, which presumably deployed the Tornado Cash Application, has zero control over the Application today,” said Brito and Van Valkenburgh. “Unlike Blender, the Tornado Cash Entity can’t choose whether the Tornado Cash Application engages in mixing or not, and it can’t choose which ‘customers’ to take and which to reject.”

They added:

“While typical OFAC actions merely limit expressive conduct (e.g. donating money to a particular Islamic charity), this action sends a signal — indeed seems to have been intended to send a signal — that a certain class of tools and software should not be used by Americans even for entirely legitimate purposes. Even if this listing is truly and exclusively aimed at stopping North Korean hackers from using Tornado Cash, and even if the chilling effect on the use of the tool by Americans for legitimate reasons was acceptable to OFAC in a collateral impact analysis, it may not be sufficient to a court.”

Related: Tornado Cash community fund multisignature wallet disbands amid sanctions

Following the announcement of the sanctions against Tornado Cash, individuals associated with the controversial mixer reported being cut off from some centralized platforms amid the controversy. Tornado Cash co-founder Roman Semenov reported developer platform GitHub had suspended his account on Monday, and users of the mixer’s decentralized autonomous organization and Discord channel said the two media also went dark.

In June, Coin Center took the U.S. Treasury to federal court, alleging the government department provisioned an unconstitutional amendment in the infrastructure bill signed into law by President Joe Biden in November 2021. The group claimed that a provision in the law was aimed at gathering information about individuals engaged in crypto transactions.