Sanctions were imposed on the decentralized crypto mixer Tornado Cash by the Office of Foreign Assets Control (OFAC) for its involvement in laundering crime proceeds. Chainalysis reported that while the sanctions did impact the platform, it was not entirely shut down as it is decentralized. Tornado Cash’s inflows dropped by 68% in the month following the sanctions, but its smart contract-based nature allowed it to continue operating despite a decrease in user activity.
Despite the sanctions’ limitations, Chainalysis emphasized that decentralized platforms like Tornado Cash are more difficult to shut down compared to centralized services. While the front-end website of Tornado Cash was taken down, the smart contracts remained operational, allowing anyone to use the platform at any time. This means that sanctions against decentralized services act more as a deterrent rather than completely cutting off usage.
The OFAC sanctions against Tornado Cash were due to concerns over its use in laundering billions worth of crypto, including funds stolen by the North Korea-affiliated Lazarus Group. The agency amended the sanctions in November to target the platform for enabling malicious cyber activities supporting North Korea’s weapons program. Chainalysis’ research indicated that a significant portion of the platform’s inflows were related to crypto hacks and scams, with inflows dropping by 68% following the sanctions.
A separate report from SlowMist revealed the extent of funds flowing through Tornado Cash in 2022, with 1,233,129 Ether (ETH) deposited and 1,283,186 ETH withdrawn, totaling $1.62 billion and $1.7 billion, respectively. The data highlights the substantial amount of money involved in the platform’s transactions, emphasizing the impact of sanctions in deterring users. Despite the decrease in inflows, Tornado Cash continues to operate, showcasing the resilience of decentralized platforms in the face of regulatory measures.
While sanctions against Tornado Cash did have an effect on its usage, the platform’s decentralized nature allowed it to continue operating despite a significant drop in user activity. Chainalysis’ research revealed a drop of 68% in inflows following the sanctions, indicating that the measures did have an impact on deterring users. However, the platform’s smart contract-based design enabled it to remain operational, with anyone still having the ability to use the mixer despite the sanctions imposed by regulatory authorities.
In conclusion, the sanctions against Tornado Cash had a noticeable effect on the platform, causing a significant decrease in inflows and deterring users from utilizing its services. Despite this, the decentralized nature of the platform enabled it to continue operating, highlighting the challenges of regulating such services. The reports from Chainalysis and SlowMist provide insight into the extent of funds flowing through Tornado Cash in 2022, underscoring the importance of regulatory measures in combating illicit activities in the cryptocurrency space.
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