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Comprehensive interpretation: The impact of US Treasury's sanctions on Tornado Cash

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Galaxy Digital releases analysis report on OFAC sanctions Tornado Cash

OFAC Sanctions Tornado Cash:Issues&Implications

原文来源：Galaxy Digital

原文编译：阿法兔

The core idea

• 这是第一次链上智能合约被 OFAC 直接制裁

• 尽管本次制裁 Tornado Cash 这是 OFAC 首次将智能合约列入 SDN 名单，但 OFAC 之前已经有过制裁其他与加密货币有关的个人和实体（以及与之相关的加密货币地址）的先例

• 仅仅指出 Tornado Cash 混淆资金来源这个功能是不够的，真正的制裁需要认定「洗钱」。要认定洗钱，被混淆的资金必须是来自非法活动的收益，或者混淆必须是为了不法目的。而 Tornado Cash 的大部分流入来自 DeFi 应用程序和 CEX 的事实表明存在大量普通用户使用该协议来增强隐私，而不是出于非法原因

• 最为广泛使用的以太坊钱包 MetaMask 的用户，现在也被禁止与龙卷风现金交互（因为 MetaMask 依赖 Infura 与以太坊交互，仍然想使用 Tornado Cash 的用户除非自己手动设置 MetaMask 的节点配置，不用 Infura，才能保证 MetaMask 可以和 Tornado Cash 交互），但是，这样做会面临违反美国制裁的责任，这样的手动配置是有门槛的，严重限制了 Tornado Cash 用户数量

• TORN 治理 Token 也会很难运行，不仅是因为为 TORN Token 做抵押的 Relayer 会越来越少，还有 Github 完全不支持关于 Tornado Cash 的业务。

• 但由于 Tornado Cash 是部署在以太坊（无法篡改区块链）上的去中心化应用程序，该应用程序本身将继续在网络上不受影响地运行，并且几乎无法停止运行

• 当在 USDT 或 USDC 上调用传输函数时，智能合约会查询链下黑名单，以确保发送地址和接收地址都不存在。如果地址出现在黑名单上，则交易会被阻止。虽然这项权限可能不会授予将单个 Token 列入黑名单，或从特定地址扣押 Token 的能力，但它能够影响列入黑名单的地址

• 有评论家认为，MakerDAO 和 DAI 正面临 PSM 和 USDC 带来的生存风险——如果监管机构可能要求大幅增加对 USDC 的黑名单或冻结，或者如果他们强制建立一个抑制 USDC 自由转让的实际白名单，那么大多数 DAI 的 Maker 的债务将无法获得支持，从而导致该系统资不抵债

• 由集中式的法币支撑的 Stablecoin 为核心的 DeFi 系统可能存在很大的问题。多年来，许多人认为 Circle 和 Tether 可以任意将 USDC 和 USDT 列用户入黑名单，然后这些币就毫无任何用处了。本周，Tornado Cash 事件将这个老问题真正展现了出来

background

On Monday, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) added Ethereum addresses linked to Tornado Cash to its list of sanctioned entities. Why is this a landmark event? This is the first time the U.S. government has sanctioned smart contract applications.

The sanctions have sparked a philosophical debate about online privacy, but the more immediate impact is on the resilience of Ethereum's decentralized financial ecosystem

(The Resilience of Ethereum's decentralized finance ecosystem.)

The main conclusion

• OFAC 对 38 个与 Tornado Cash（链上混币器）相关的智能合约地址进行了制裁。

• 这是 OFAC 第一次对一个智能合约协议进行制裁；

• 以太坊节点供应商、钱包和代码库迅速禁止 Tornado Cash 的用户访问，引发了大家对有很多人使用的技术栈的去中心化的严重质疑；

• Stablecoin 发行人冻结了与 Tornado Cash 相关的资产，明确表示需要对链下发行人负责的 Token 是加密生态系统（尤其是 DeFi）的主要漏洞；

• 鉴于对 USDC 和 USDT 的依赖，充分说明即使是去中心化的 Stablecoin 也很脆弱。两个最大的去中心化 Stablecoin DAI 和 FRAX 对于 USDC 的依赖超过 2/3；

• OFAC 的行动还提出了有关互联网隐私的政策问题，以及美国各级政府机构如何看待隐私技术之间的差异；

OFAC overview of

On Monday, the US Treasury's Office of Foreign Assets Control (OFAC) added Tornado Cash, an Ethereum-based privacy app, to its list of restricted entities. Specifically, OFAC added 38 Ethereum smart contract addresses associated with the Tornado Cash app to the U.S. Special Enacting National (SDN) list, making it a restricted entity, i.e., It is unlawful for entities to interact with Tornado Cash agreements or resulting assets.

Specifically, OFAC added 38 Ethereum addresses associated with the Tornado Cash app to the DN List, which means, It is illegal for any entity to interact with Tornado Cash applications or assets derived from Tornado Cash.

This is the first time an on-chain smart contract has been directly sanctioned by OFAC.

Press release, OFAC said the sanctions Tornado Cash because of the application in essentially all or most of the network activity from outside the United States to help, sponsorship or funding, material or technical support, or the provision of goods or services, are likely to U.S. national security, foreign policy and economic health or pose no major threat to financial stability, The serious misappropriation of funds or economic resources, trade secrets, personal identification or financial information may result in the acquisition of commercial or competitive advantages or private economic benefits by some lawless elements.

The Office of Foreign Assets Control at the U.S. Treasury

OFAC (Office of Foreign Assets Control of the U.S. Department of the Treasury) is an office of lawyers and intelligence investigators that is designed to support U.S. national security and foreign policy objectives. Its mission is to impose sanctions in the economic and trade sectors. OFAC adds both individuals and entities to the SDN List, which prohibits Americans and entities from interacting with them in any "trade or financial transactions and other transactions." Note that those who transact with the subjects on the list may themselves be subject to sanctions.

OFAC's history of sanctioning cryptocurrencies

Although this is the first time that OFAC has added smart contracts to its SDN list, OFAC has previously sanctioned other individuals and entities (and cryptocurrency addresses associated with them) related to cryptocurrencies, as follows:

Sanctioning crypto addresses or entities involved in cryptocurrencies (part of it) :

• 2018 年 11 月 28 日。OFAC 制裁增加了伊朗国民的 BTC 地址

• 2019 年 8 月 21 日：OFAC 制裁增加了据说是中国的 BTC 和 LTC 地址

• 2020 年 3 月 2 日。OFAC 制裁增加了属于朝鲜的加密货币（主要是 BTC）地址（Lazarus Group）

• 2020 年 9 月 10 日。OFAC 制裁增加了 BTC、ETH、LTC、ZEC 和 BSV 地址，声称这些地址属于试图影响美国总统选举的俄罗斯公民

• 2020 年 9 月 16 日。OFAC 制裁增加了 BTC、ETH、XMR、LTC、ZEC、DASH、BTG 和 ETC 地址，声称它们属于俄罗斯黑客

• 2021 年 4 月 15 日。OFAC 制裁增加了 BTC、ETH、BCH、LTC、ZEC、DASH 和 XVG 地址，声称这些地址属于试图影响美国总统选举的俄罗斯公民

• 2021 年 7 月 28 日。OFAC 制裁据称属于叙利亚国民的 BTC 地址

• 2021 年 9 月 21 日。OFAC 增加了 BTC、ETH 和 USDT 地址，据称这些地址属于加密货币交易平台（SUEX），参与了对通过勒索软件赚取的资金的洗钱

• 2021 年 11 月 8 日。OFAC 添加了 BTC、ETH、LTC、DASH、XMR、XRP、BCH 和 USDT，据称这些地址属于勒索软件集团

• 2022 年 4 月 5 日：OFAC 增加了 BTC、ETH 和 USDT 地址，据称这些地址属于爱沙尼亚暗网 Hydra Market

• 2022 年 4 月 14 日：OFAC 增加了一个 ETH 地址，据称属于朝鲜的 Lazarus

• 2022 年 5 月 6 日：OFAC 增加了据称属于比特币混合服务 Blender.io 的 BTC 地址，OFAC 制裁了属于朝鲜 Lazarus 集团黑客的 ETH 地址，这些钱包地址与 Axford、Axie Infinity 的 Ronin Bridge 资金被盗有关

• 2022 年 4 月 20 日：美国特别制定国民名单中将俄罗斯 BTC 矿工和托管服务提供商 Bitriver 以及 10 个子公司列入名单

• 2022 年 8 月 8 日：OFAC 增加了和 Tornado Cash 相关的 45 个 ETH 地址

哪些人在使用 Tornado Cash？

Since its launch in 2019, Tornado Cash has been used by a number of entities, some of which have been found to be criminal organizations. In a recent report by Chainalysis, 50 percent of the money flowing into Tornado Cash comes from decentralized finance (DeFi) and 20 percent from centralized trading platforms, while nearly 30 percent of the money flows are linked to the addresses and sanctioned addresses of hackers trying to launder money. In a separate analysis, it is estimated that 35 percent of Tornado Cash transactions come from criminal organizations.

Tornado Cash has been used to "launder more than $7 billion worth of virtual currency" since its launch, OFAC said in a press release. The cumulative volume of transactions through Tornado Cash was $7.6 billion, but according to the data from Chainalysis and Nansen, the amount from criminal syndicates could be much lower.

In addition, as discussed at the end of this paper, it is not enough to just point out the function of Tornado Cash to confuse the source of funds. Real sanctions need to identify "money laundering". For money laundering to be considered, the funds to be obfuscated must be the proceeds of an illegal activity, or the obfuscation must be for an illegal purpose. The fact that the bulk of Tornado Cash's inflow comes from DeFi applications and CEX suggests that a large number of ordinary users are using the protocol to enhance privacy, rather than for illegal reasons.

Of course, it is difficult to know exactly how many of the Tornado Cash interactions from DeFi and CEX belong to innocent users rather than sanctioned addresses, but you understand why users use Tornado Cash.

Some of the reasons include (according to Twitter @Rezajafery) :

• Get paid in cryptocurrency but don't want your employer to know all your financial details

• Pay for services with ETH, but don't want them to see everything you do on the chain

• Has been searched by human flesh and harassed online

• Want to donate to polarizing causes

• Want to give anonymous gifts

• It bothers you to think that everyone who knows your little friend knows you better

• Think encryption will achieve mainstream adoption, meaning everyone will have access to all this information (retailers, banks, potential employers) and doubt they will use it ethically

• 以太坊联合创始人 Vitalik Buterin 承认使用 Tornado Cash 捐款。

Tornado Cash Application Data & NBSP;

Tornado Cash's cumulative TVL has reached $7.6 billion since its launch in August 2019. Tornado Cash currently exists on seven different networks, although 92% of funds are held on Ethereum (92%) and 8% on the BNB chain.

All aspects of the impact of the sanctions

0. Impact on Tornado Cash

Recent U.S. Treasury Department sanctions against Tornado Cash have resulted in all individuals and entities in the United States being banned from using the app, either directly or indirectly through third-party services. Of course, this is not the first currency mixing service to be sanctioned by the US Treasury. Earlier this year, the U.S. Treasury Department sanctioned Blender. IO, a coin mixing service that runs on the Bitcoin blockchain. But unlike Blend.io, Tornado Cash is a decentralized service that operates primarily through smart contracts on Ethereum. This means that despite sanctions against Tornado Cash, its official website and on-chain address, the agreement itself cannot be shut down. Customers who send transactions to Tornado Cash will still be able to get the currency mixing service.

As a result of the sanctions, access to Tornado Cash will be restricted. Not only will users not be able to access Tornado Cash's official website, but third-party node operators such as Infura and Alchemy will also stop supporting Tornado Cash services.Also, users of MetaMask, the most widely used Ethereum wallet, are now barred from interacting with Tornado Cash. (Since MetaMask relies on Infura to interact with Ethereum, users who still want to use Tornado Cash will have to manually set MetaMask's node configuration. Infura is not needed to ensure that MetaMask can interact with Tornado Cash). However, doing so may lead to the liability of violating U.S. sanctions. Such manual configuration has a threshold, which severely limits the number of Tornado Cash users.

It is worth noting that most users interact with Tornado Cash through third-party interface. For example, Tornado Cash's official website has been offline after the sanctions, but Tornado Cash's smart contract still exists. It is still accessible on the Ethereum blockchain (since the state history of the blockchain cannot be changed), so users can still interact directly with Tornado Cash, but users can no longer access the front-end page of the website.

In addition, the sanctions against Tornado Cash also include all Tornado Cash developers and code contributors.Although Tornado Cash is currently still available on Ethereum, this sanction means that any further changes to the protocol through governance are illegal regardless.Tornado Cash's GitHub account has been deleted and founder Roman Semenov's GitHub account is said to have been deactivated. Therefore, while Tornado Cash itself continues to run on Ethereum, it may not be possible to modify its code or make new developments.

Adding new Tornado Cash pools to different chains will now be stopped. Of course, it is possible that anonymous individuals or groups may have copied Tornado Cash's codebase for further development. However, the clear signal from the U.S. Treasury Department that all these types of applications will be subject to U.S. sanctions is likely to deter most engineers from working on Tornado Cash.

Finally, while Tornado Cash's core functionality will not be affected by U.S. sanctions, additional privacy services offered to users through Tornado Cash will be discontinued.

What is the Relayer Registry

(The Relayer Registry passed with a 100% vote in favor (about 35,000 TORN), and any user pledging more than 300 TORN can become a Relayer. The proposal is now due to be implemented at around 17:50 today. Tornado Cash, an Ethereum privacy trading platform, issued a governance proposal, proposing to update Relayer rules to enhance the decentralized level of the protocol and further improve the holding efficiency of TORN. According to the proposal, any user who pledges more than 300 TORN can become a Relayer and be added to the priority list. Each withdrawal through Relayer requires payment by Relayer in the form of TORN (currently 0.3%), which will be stored in a StakingReward contract and picked up by the TORN holders participating in the governance.

Reference: Block Rhythm BlockBeats

Relayer allows users to pay for Internet access and withdraw money from Tornado Cash so their wallets or addresses cannot be easily linked to Tornado Cash. As a result of the recent sanctions, Relayer's withdrawal from Tornado Cash on behalf of its users is a clear violation of U.S. law. As a result, Relayer's role may not Work at all. Most Relayers based in the United States will abandon their operations and comply with the sanctions.It will also be difficult for TORN governance tokens to operate, not only because there will be fewer Relayer who pledge TORN tokens, but also because Github does not support Tornado Cash business at all.

To sum up, US sanctions on Tornado Cash mainly affect users' access to the protocol, cooperative code development and some protocol functions, such as Distributed Relayer Network. Will make it harder for the average user to participate in any of these activities. But because Tornado Cash is a decentralized application deployed on Ethereum (which cannot tamper with the blockchain), the application itself will continue to run unaffected on the network and will be almost impossible to stop running.

1.Stablecoin vulnerabilities

First, fiat Stablecoin issuers are required by law to comply with KYC/AML and transaction monitoring activities. To comply with these laws, issuers of fiat backed stablecoins can maintain the administrative ability to control stablecoins by maintaining a blacklist of these blocked addresses, or by preventing specific addresses from interacting with their stablecoins.

For example, when the transfer function is called on the USDT or USDC, the smart contract queries the off-chain blacklist to ensure that both the sending and receiving addresses do not exist. If the address appears on the blacklist, the transaction is blocked. While this authority may not grant the ability to blacklist a single Token, or impound a Token from a specific address, it can influence blacklisted addresses.In a blog post published on Tuesday, Circle confirmed compliance with the Treasury's latest sanctions on Tornado Cash, blocking 38 addresses, These addresses hold a total of $149,000 USDC (average $3,921 / address) that access the USDC from Circle Accounts.

While complying with the Treasury order, Circle does not agree to enforce its open source protocol blacklist feature, arguing that "being forced to use this feature to shut down all USDC access protocols in an entire open source project is problematic. In the past, Circle has said that all digital assets sanctioned to date were intended to comply with OFAC sanctions and court orders in law enforcement, adding: "Blocking was in no way unilateral or arbitrary by Circle and was in compliance with the relevant agency's obligations."

However, this power to block arbitrary transactions reflects the limitations of the existence of fiat stablecoins. The limitation is that for on-chain interactions like DeFi applications, the user's decision to blacklist an address is almost completely blindsided, and nothing is visible. This is completely at odds with the ideal of an open, transparent governance process for an encrypted network that places decision-making power in the hands of the community.

The fiat Stablecoin holder, on the other hand, has to trust that the central Stablecoin issuer is not a problem, is behaving well, and is not abusing its power. In fact, we can clearly see the danger of granting such blacklisting authority to a centralized company, which is likely to be abused by such commercially driven companies.

2. Wider impact

Because stablecoins are essential to the proper functioning of both on-chain and off-chain crypto markets, fiat currency-backed (or managed/regulated) stablecoins account for 92% of today's $155 billion stablecoins.There is also a problem, given that many crypto supported or "unmanaged" stablecoins depend on fiat backed stablecoins, such as heavily relying on USDC and USDT support.For example, USDC and decentralized Stablecoin, DAI and FRAX have significant associations. As of July 31, USDC supported more than half of DAI, according to DaiStats. If USDC-associated LPs is included, it indirectly accounts for two-thirds. FRAX, a Stablecoin using a partial collateral/algorithmic stabilization mechanism, is over 90% supported by the USDC.

According to DaiStats, as of July 31, direct USDC accounts for more than half of the total support and indirect DAI accounts for about two-thirds of the total support when including LP related to USDC. FRAX is a Stablecoin that uses a partial collateral/algorithmic stabilization mechanism and is over 90% supported by the USDC.

• Decentralized stablecoins that rely on regulated stablecoins such as the USDC may be subject to extended scrutiny.Since Maker accepts centralized stablecoins as collateral deposits, the risks associated with frozen assets or potential scrutiny of centralized stablecoins extend to DAI.

Some critics say,MakerDAO and DAI are facing existential risks from the PSM and USDC -- if regulators are likely to demand a substantial increase in blacklisting or freezing of USdcs, or if they impose a de facto whitelist that inhibits free USDC transfers, Then most of DAI's Maker debts would not be supported, making the system insolvent.

In other words, MakerDAO was created to function as a decentralized Stablecoin system and relied on centrally issued assets as collateral, which undermined the stated purpose and core value proposition of the system.

• The unmanaged Stablecoin/DeFi protocol is designed to reduce dependence on USdcs to avoid the risk of blacklisting USdcs.In Maker, informal discussions have emerged amid discord over possible emergency measures to force down USDC deposits. In the most extreme cases, they include negative interest rates on USDC deposits, implementing Maker's emergency shutdown function to enable only debt repayment, or updating Maker contracts to enable DAI's blacklisting so that the agreement can comply with the sanctions order and avoid the risk of being blacklisted itself.

• Increased demand for decentralized stablecoins.Although encrypted networks and protocols may be permanent; And decentralized stablecoins that rely on regulated stablecoins such as the USDC may and will be reviewed by regulatory authorities. The unmanaged Stablecoin/DeFi protocol needs to reduce the dependence on the USDC to avoid the risk caused by the USDC blacklist. In Maker Discord, there was a discussion about people wanting to rely on the USDC for emergency measures. In the most extreme case, how to deal with the negative interest rate on USDC deposits, and how to implement Maker's emergency shutdown function? Or update Maker's contract to enable DAI's blacklisting so that the agreement can comply with the sanction order and avoid the risk of being blacklisted.

The need for decentralized stablecoins will increase, and even though decentralized stablecoins' cryptocurrency networks and protocols are decentralized, it can be troublesome if the underlying asset is a centralized fiat currency-backed Stablecoin. In fact, this technique can also be used over time, that is, to restrict the transfer of fiat stablecoins to any address that is not whitelisted.

If such restrictions are imposed, most of the Stablecoin activity is likely to go to newer, more decentralized stablecoins.Since Treasury sanctioned Tornado Cash, there has been a greater demand for stablecoins and their associated governance tokens that are fully backed by decentralized assets such as ETH and WBTC, Including Liquity USD (LUSD trading above $1.05 on increased demand, LQTY up more than 30%) and Magic Internet Money (MIM trading at $1.01; SPELL gained 40%), which contrasts with the poor performance of Maker (MKR-10%) and Frax (FXS-11%) governance tokens.

3. The impact of accessing and building Ethereum

There are several important considerations regarding the recent sanctions on Tornado Cash and the impact on the ecology as a whole:

Tornado Cash was used by the Lazarus Group, an official Chinese hacking Group, to launder more than $455 million worth of crypto money, widely cited as a reason for the sanctions. Although ordinary legitimate users will also use the app to enhance their privacy in on-chain transactions. Therefore, the actions taken this week by the Treasury Department are considered national security,So could other unlicensed apps on Ethereum be subject to the same type of censorship by the U.S. government? Especially if it involves decentralized financial apps that hackers use to lend and trade? Will these apps also be sanctioned?

Many Ethereum applications are decentralized. Then, how does the impact of US sanctions on Tornado Cash affect access to other decentralized software on Ethereum?Customers who currently rely on accessing Tornado Cash through centralized infrastructure providers such as Infura and Alchemy will no longer be able to use Tornado Cash.

This means that a more significant concern is that if there is a lack of users running their own infrastructure to connect to the Ethereum blockchain, and if there is an over-reliance on Infura and Alchemy, will there be censorship sanctions from other parties besides Tornado Cash in the future?

Overreliance on Infura, in particular, has been an ongoing concern for core Ethereum developers since 2018. Attempts to mitigate this problem have focused on requirements to make it easier for ordinary users to run Ethereum nodes.

But these attempts are a work in progress, and over-reliance on centralized running nodes is still a widespread problem on Ethereum.

Another centralized presence that could disrupt Ethereum applications is GitHub.

As described earlier in this report, Tornado Cash as a protocol was developed and shared primarily through GitHub. Since the sanctions were imposed, all Tornado Cash repositories have been deleted and contributors' accounts banned.

Note that this 2019 is no different, with developers from Iran, Crimea and other countries under US sanctions also banned from using the GitHub development platform. Therefore, this fully embodies the potential problem of Ethereum's decentralized application software development and Ethereum protocol development, which is over-reliance on GitHub.

As previous Ethereum developer calls have highlighted, there have been concerns that the development process driving upgrades to client software is dependent on GitHub, and that this could one day become unreliable for reasons beyond the control of the core developers.

This has led to talk of the need to transition Ethereum's core development steps and code to other open source platforms -- an alternative to GitHub.

In summary, the sanctions against Tornado Cash highlight the problem of relying on centralized platforms for various protocol technologies based on Ethereum and Ethereum. In order to mitigate the impact of additional sanctions on other Ethereum DApps and Ethereum itself, there is a strong need to accelerate the push towards decentralization, especially when running node infrastructure and storing code bases.

4. Long-term effects

Money laundering vs. Privacy

While the role of the U.S. Office of Foreign Assets Management remains focused on protecting and promoting U.S. national security and foreign policy through financial intelligence and law enforcement, rather than focusing on privacy, the Tornado Cash sanctions raise fundamental questions about financial privacy and Internet privacy. Tornado Cash has been used by bad actors and entities to launder money from illicit activities, but as discussed above, it is also used by individuals, charities, activists, and others.

It is important to note that obfuscation of sources of funds (such as anonymous donations) is not in itself illegal, while "money laundering", the process of converting illegally obtained funds into cash, is illegal.The transportation, transmission, or transfer of funds outside the United States is also illegal money laundering under the United States Code and relevant anti-money laundering laws. But the problem is that it is not illegal to obfuscate financial transactions or transfer funds, unless the reason for doing so is to conceal illegal activity or to channel illegally obtained funds into a legitimate financial transaction system. There are many other reasons why individuals or entities may seek to maintain financial privacy, especially when operating in a transparent on-chain environment where there is a need for privacy and is not in itself illegal.

OFAC with the U.S. Department of Justice and FinCEN

OFAC with DOJ and FinCEN

In addition, approval of decentralized, unhosted applications (a tool) seems to be the basis for the new OFAC. Our review of Tornado Cash contracts confirms DeFi's widely held view of the ecosystem: Tornado Cash cannot freeze user funds, prohibit interaction with its app, or upgrade its app to do so. This is quite different from Blender.io, the other cryptocurrency hybrid service previously approved by OFAC, which was centrally operated and controlled in a hosted manner.

In addition, OFAC's current sanctions against Tornado Cash, a decentralized app and tool, is a new frontier,The DeFi ecosystem has long operated in a decentralized manner, and Tornado Cash does not have the ability on its own to freeze users' funds, ban interactions with its app, or impose sanctions by upgrading its app.This is a big departure from earlier this year when OFAC chose to sanction Blender. IO, which was centrally operated and controlled in a hosted manner.

It is worth noting that OFAC did not sanction the software developers who founded Tornado Cash, nor did it sanction the DAO members who controlled Tornado Cash vault. Of course, no sanctions were imposed on the developers, possibly because OFAC has yet to determine whether they are foreigners, and OFAC could operate under the DOJ's proposed framework. Unlike the Treasury Department, the U.S. Department of Justice wrote in an October 2020 report: According to FinCEN, anonymous service providers and some anonymous cryptocurrency issuers are in the money transfer business, while individuals or entities that simply provide anonymous software are not.

(According to FinCEN, anonymizing service providers and some AEC are money support, Whereas an individual or entity that merely serves, provides provides anonymizing software is not.)

Note: FinCEN, the Treasury Department also has an agency called the U.S. Financial Crimes Enforcement Network. FinCEN stands for the U.S. Financial Crimes Enforcement Network, Its members are Treasury Department officials responsible for fighting financial crime.

According to the Department of Justice (DoJ), which cites FinCEN,The agency also pursues financial crimes within the Treasury Department, and OFAC may consider Tornado Cash to be an "anonymous service provider" rather than just "anonymous software."OFAC, of course, has not provided any detailed analysis of this, we are just speculating and cannot know exactly how much they are based on this distinction of sanctions. But given Tornado Cash's decentralized, unmanaged, unmanaged nature, and its structural inability to comply with sanctions, it appears that if OFAC follows similar guidelines as the DOJ and FinCEN, it considers Tornado Cash to be an anonymous service provider rather than anonymous software.

Another, more likely explanation is that OFAC is more focused on Tornado Cash applications - regardless of how Tornado Cash is characterized, one established fact is that Tornado Cash is frequently used by Lazarus Group and other criminals. OFAC can differ from FinCEN standards, and OFAC sanctions need not be specifically related to bank secrecy Act compliance issues.

Biggest hole: DeFi ecology

OFAC sanctions have obvious effects, especially on DeFi protocol, but the bigger problem is that DeFi system with Stablecoin as the core supported by centralized fiat currency may have big problems. For years, many people believed that Circle and Tether could blacklist USDC and USDT users at will, and then the coins would be useless.

Tornado Cash really brought this old problem to the fore this week.

However, given the current situation, US regulators and policymakers should currently be evaluating new rules for Stablecoin issuers, which could easily include a ban on secondary transfers of issued tokens to blacklisted addresses, subject to ongoing tracking.