Cash tornado ban sets bad precedent for decentralized finance

The US government has banned Tornado Cash. The decentralized protocol has helped cryptocurrency owners maintain their anonymity by hiding information trails on the blockchain. The government said the protocol contributed to money laundering worth $7 billion.

OFAC – Office of Foreign Assets Control, a financial intelligence and enforcement agency of the US Treasury Department – said: “All entities owned, directly or indirectly, 50% or more by one or more Blocked Persons are also blocked. All transactions by U.S. Persons or within (or transiting) the United States that involve property or interests in the property of named or otherwise blocked persons are prohibited.

Crypto activists were disturbed by the move and strongly criticized the government for banning the protocol. They said that since the majority of these transactions were fully genuine and legal, the government’s decision to ban the protocol was wrong.

They also reminded that the banning of Tornado Cash in the United States will not prevent validators from countries such as Iran, North Korea, Kazakhstan and others from using the platform.

The government’s decision to ban the platform only affected US users who were mostly legitimate and not involved in illegal activities.

Advocates fear this will set a bad precedent and that other decentralized finance (DeFi) protocols may also be considered in the future.

Some expressed their shock

Justin Ehrenhofer, Vice President of Operations at Cake Wallet, believes that sanctioning open source tools is wrong. He expressed concern about this and said that users in the Monero community feared that the US government would shut down their project as well.

Monero (XMR) digital currency allows users to send and receive money anonymously. Many people use its decentralized system to protect their transactional privacy. It is designed to resist censorship.

Ehrenhofer questioned authorities’ attempts to “go after the whole network” instead of punishing specific smart contract addresses. All users located in the United States were prohibited from using Tornado Cash’s coin mixer or any of the Ethereum wallet addresses connected to its protocol.

This decision threw “the right of individuals to transact” out the window.

Coinbase CEO Brian Armstrong tweeted that sanctioning technology would set a bad precedent and should be challenged. In a series of tweets, he criticized the government’s decisions in different terms.

Armstrong’s tweets weren’t enough as some reminded him of his decision to ban XRP in 2020 on his trading platforms.

In December 2020, the Securities and Exchange Commission (SEC) filed suit against Ripple Labs Inc. and two of its executives, who were also significant security holders, alleging that they had raised over $1.3 billion. dollars through a continuous unrecorded digital asset securities offering.

Due to the SEC action against Ripple Labs, Coinbase has decided to shut down XRP trading pairs on Coinbase Exchange, Coinbase Pro, and in all territories.

Meanwhile, Crypto activists believe industry leaders have not unanimously backed Tornado Cash and a majority have instead sided with the government’s decision to ban the platform.


When the ban was announced, the stablecoin’s parent company, Circle, immediately froze all USDC on Tornado Cash and blocked any related addresses from using USDC.

The ability of one of the largest and most reputable stablecoins to instantly freeze anyone’s account has also drawn a lot of criticism.

The stablecoin is completely centralized and is managed by an organization with a US base of operations.

Some industry leaders fear that if the USDC is forced to freeze more assets, it could trigger a chain reaction that destroys DeFi.

For example, USDC is used in collateral for Aave loans, Uniswap trading, and as a component of the stablecoin Dai peg.

The entire DeFi industry would vanish overnight if the government decides to ban all three DeFi pillars outright in its next decision and the USDC agrees.

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