Tornado Cash saga escalates as popular influencers get banned from major DeFi protocols

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(Kitco News) – It’s now been a full week since the US Treasury Department announced sanctions against popular cryptocurrency mixer Tornado Cash, and the move is starting to have significant ramifications in the decentralized finance (DeFi) landscape. ).

In the days following the announcement, law enforcement actions around the world began to intensify. One of the most significant developments includes the arrest of Tornado Cash developer Alexey Pertsev by the Dutch Fiscal Information and Investigation Service (FIOD) on August 10, which sparked the ire of the wider crypto community. .

Pertsev’s arrest marks a significant escalation in the global crackdown on decentralized protocols, marking the first instance of a government agency seeking to attribute the crime to a programmer for producing code.

According to FIOD, the agency arrested the 29-year-old developer for his alleged involvement in concealing criminal financial flows and facilitating money laundering through Tornado Cash.

“Investigations have shown that at least $1 billion worth of criminally sourced cryptocurrency has passed through the mixer. It is suspected that the people behind this organization have made large-scale profits from these transactions,” said the FOID.

Pertsev’s arrest demonstrates that the world is moving towards a new global regulatory paradigm, which includes the expansion of government oversight into the world of smart contracts, a painful development for DeFi participants.

The immediate concern is that other decentralized protocols may soon be subject to enforcement action by regulators seeking to rule the industry. Many popular DeFi protocols have already taken steps to prevent a regulatory crackdown by blocking users associated with Tornado Cash Address sanctions and denying front-end access to sanctioned geographies.

Platforms that have been proactive on this front include decentralized exchanges Uniswap, 1inch, Balancer, and dYdX, as well as Github, Circle, Alchemy, Aave, and Infura.

Influencers targeted by dust attack

The saga took an interesting turn over the weekend as many high-profile influencers in the crypto space started reporting that they were being blocked by web apps for certain DeFi protocols.

Further investigation revealed that an anonymous user randomly sent small amounts of Ether (ETH) to more than 600 addresses in what is known as a Tornado Cash Mixer “dust attack”.

Since the sanctions put in place by the Treasury Department require that all addresses that have interacted with Torando Cash be added to the blocked list, these 600 addresses now fall into this category and are prohibited from interacting with protocols seeking to avoid regulators.

Some of the crypto influencers involved include Tron founder Justin Sun and Coinbase CEO Brian Armstrong, as well as mainstream celebrities like Jimmy Fallon, Shaquille O’Neal, and Dave Chappelle.

Luckily for those affected by the prank, simply receiving crypto from Tornado Cash is unlikely to result in criminal prosecution, as the law requires “deliberate” engagement with the mixer to merit a response from authorities.

Nonetheless, this first enforcement action against what is essentially an AI-controlled smart contract has crypto proponents worried about the future of the DeFi industry, especially now that US Treasury sanctions appear to be applying to non-competitors. -citizens.

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