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Despite initial setbacks, the road to justice for Tornado Cash has not been easy.

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The judge believes that smart contracts are also property and that the DAO structure is no different from that of a company's shareholders.

On August 17, 2023, despite the support of giants such as Coinbase, a team of six people including Coinbase employees and Ethereum core developers failed in their lawsuit accusing the US Treasury Department's Office of Foreign Assets Control (OFAC) of exceeding its authority in sanctioning Tornado Cash.

This lawsuit is a response to the sanctions imposed by the US Department of the Treasury's Office of Foreign Assets Control (OFAC) on the privacy platform Tornado Cash in 2022. Previously, OFAC had placed some Ethereum addresses that interacted with the Tornado Cash protocol or were related to it on the SDN (Specially Designated Nationals) sanctions list.

After this sanction event, a large number of DeFi protocols banned addresses related to Tornado Cash, and the Github code repository of the founding team members was also deleted. Even its co-founder Alexey Pertsev was arrested in the Netherlands on August 12, 2022 (released in April 2023) on charges of "concealing criminal fund flows and facilitating money laundering". In addition, the Tornado Cash Discord channel and DAO governance forum were also closed on the same day.

Reference reading: "Interpretation of the strictest encryption sanctions in history: What happened to Tornado Cash"

Rejected Main Motion

The Texas judge Robert Pitman in charge of this case believes that smart contracts are "like vending machines" because "smart contracts automatically execute specific predetermined tasks without the need for additional human intervention." This fact does not affect the status of smart contracts as a type of contract, nor does it affect their status as a type of property within the meaning of the law. Tornado Cash promotes smart contracts with the characteristic of unilaterally providing services (similar to vending machines). Tornado Cash has sufficient property rights in these smart contracts.

Not only that, Robert also believes that, "even if smart contracts are automatic and immutable, the developers and organizations behind them can still be seen as a single entity and may need to bear legal responsibility."

"DAO itself is an entity that demonstrates consensus on common goals through its voting members. As the government has pointed out, this structure is no different from the structure of a company's shareholders, who may not intend to vote at the shareholders' meeting, but this does not affect the structure of the entity."

Some community members have expressed that the previous Tornado Cash case is likely the first time that a piece of code has been used as an organization to sanction. Therefore, given the uniqueness of the Tornado Cash case and the complex legal issues involving cryptocurrency and blockchain technology, any legal ruling on this matter is likely to have a significant impact on regulations and compliance in this field. This may also be the reason why this case has received attention.

Appeal Continuation

Regarding the recent defeat, Coinbase's Chief Legal Officer Paul Grewal stated that we still believe that it was correct to file charges against Tornado Cash with OFAC. We have long known that a Fifth Circuit review is necessary to resolve these issues, and we will continue to support their appeal.

The members of the six-person team, Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch, have not yet commented on this ruling.

When the organization was announced in September 2022, its founding declaration stated that code is speech and freedom of speech is a right worth protecting.

Combined with the intense and tough regulation of the cryptocurrency industry by entities such as the SEC and the US Department of Justice, the road to defending smart contracts and code may still be a long one.

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