Several dapps on Ethereum have started to ban users in the wake of sanctions levied on Tornado Cash. Major protocols currently include Circle, dYdX, Aave, Uniswap, and Balancer.
As a crypto mixer operating on Ethereum, Tornado Cash has been accused of laundering stolen crypto and was banned by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) on Aug. 8. Crypto mixers anonymize blockchain transactions by breaking the on-chain link between source and destination addresses.
The sanctions, however, have sparked debate within the crypto community – proponents of Tornado Cash argue that the sanctions pose a serious threat to financial privacy, while critics agree with the ban since it can be an effective weapon to fight against cybercriminals.
The Aug.12 arrest of Tornado Cash developer Alexy Pertsev by Dutch authorities has been widely condemned by the crypto community. The Block identified the dev in an article published on Aug. 12 after interviewing his wife Ksenia Malik. It does not appear that the authorities have charged Pertsey with a crime.
Now, established DeFi protocols seem to be taking a cautious approach to compliance by preemptively banning addresses that have interacted with Tornado Cash.
Centre, the issuer of the USDC stablecoin, has complied with the sanctions and blocked 38 addresses with links to Tornado Cash.
“Maintaining compliance with sanctions laws through block lists is a reality of issuing a digital asset within the regulatory perimeter of the U.S. and other countries. However, being made to use that feature to shut down all USDC access across an entire open source protocol appears flawed, ” Circle CEO Jeremy Allaire later wrote in a blog post.
dYdX, the derivatives trading protocol, said on Aug. 10 that it has banned certain blockchain addresses as a result of the Tornado sanctions. dYdX noted that many of the banned addresses have never directly engaged with Tornado Cash.
Justin Sun, the founder of the Tron blockchain, claimed that he had been blocked by Aave, the leading DeFi money market, because someone sent him “0.1 ETH randomly from TornadoCash.”
Aave later responded on Twitter that TRM Labs, a compliance vendor, identified all wallets that have interacted with Tornado Cash and banned the “dusted” wallets, but only at the front-end level. This means that banned users are still able to interact with Aave’s smart contracts.
The Uniswap website also displays “Blocked Address” when attempting to access the largest decentralized exchange with certain dusted wallets that interacted with Tornado Cash.
Yearn developer Banteg has posted a list of other DeFi protocols that have blocked access from sanctioned wallets. These include Balancer, Ren and Oasis.
Updated on Aug. 16 to add details about arrest of Pertsev.