Tornado Cash, a coin mixer, announced Friday that it is using a tool built by compliance firm Chainalysis to ban crypto wallets sanctioned by the United States Office of Foreign Assets Control (OFAC). However, one of the protocol’s founders later stated that the blockade only applies to the user-facing decentralized application (dapp), not the underlying smart contract.
The coin mixer, which aims to protect people’s financial privacy, has frequently been used to hide the trail of cryptocurrency stolen through hacks. The protocol’s creator has previously stated that enforcing sanctions on decentralized protocols such as Tornado Cash is “technically impossible.” In a March interview, he added, “There’s not much we can do.”
The half-measure of blocking front-end access, on the other hand, is not new. Tornado Cash, according to a former DEA agent, is on OFAC’s list of sanctioned crypto wallets.
The announcement comes after US authorities accused North Korean hackers of being behind a $625 million attack on Axie Infinity’s Ronin blockchain on Thursday. Elliptic, a tracing business, reported Thursday that the Ronin hackers “had so far transmitted $80.3 million worth of ETH through Tornado Cash.”
“The fact that Tornado Cash doesn’t allow access to its app to comply with regulations doesn’t necessarily mean that the protocol and smart contracts are not available to the sanctioned entities,”
Tal Be’ery, the chief technology officer of crypto wallet ZenGo
OFAC is the US Government agency in charge of executing economic sanctions in support of national security and foreign policy. It keeps track of crypto wallets linked to sanctioned individuals and companies. The Chainalysis oracle for sanctions compliance is a free smart contract that searches for cryptocurrency wallets sanctioned by various countries. The sanctions-screening mechanism was launched in March in response to Russia’s invasion of Ukraine.
“Now is the time for the industry to demonstrate that blockchains’ inherent transparency make cryptocurrency a powerful deterrent to sanctions evasion,” Chainalysis CEO Michael Gronager said at the time, adding:
“In anticipation of ongoing sanctions, we’ve prioritized the development of these tools so that all cryptocurrency market participants have what they need to harness this transparency and conduct basic sanctions screening at no cost to them.”
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