Tag: tornado cash

Tornado Cash Sees about 80% Deposit Decline following OFAC Sanctions: Report

In just about a week since the United States Treasury Department’s Office of Foreign Assets Control (OFAC) imposed a ban on the crypto mixer, Tornado Cash, the total deposits on the platform have plummeted remarkably. 

According to data from The Block’s Research, the recorded deposit into Tornado Cash came in at $6 million following the sanction, which is exactly 78.5% lower than what was recorded in the week-ago period.

While new users are reportedly boycotting the crypto mixing protocol, those who have deposits locked up on the platform are notably sending out their funds in order not to get caught in the crosshairs of US authorities.

In clearer terms, the data from the research showed that $62 million has been withdrawn from the protocol, decreasing the amount of crypto held in its addresses by 15%. Out of this amount, $14.7 million was withdrawn in the first three hours since the sanctions were announced. 

Crypto mixers are a privacy tool that helps obfuscate the sources of transactions without emphasising Know Your Customer (KYC) or Anti-Money Laundering (AML) checks. Since its inception, the US Treasury Department pointed out that Tornado Cash has been used to process as much as $7 billion since 2019, with about $455 million of the quoted funds belonging to the notorious crime group Lazarus Group.

The sanctions on the crypto mixing tool have alerted many service providers, including the currently embattled crypto lending outfit Celsius Network to place an embargo on addresses linked to Tornado Cash. 

Besides Celsius, the decentralised exchange platform dYdX has also informed its users that it has started blocking accounts linked to Tornado Cash. The sanctions on Tornado Cash also follow the same ban on Blender.io, a mixing tool placed on the OFAC sanctions list back in May.

Tornado Cash Developer Arrested by Dutch Authorities

The Dutch Fiscal Information and Investigation Service (FIOD) has arrested a suspect in connections to money laundering crimes on the crypto mixing platform, Tornado Cash.

According to the statement, an individual is a 29-year-old man arrested in Amsterdam with his identity obscured by the regulator.

Tornado Cash was sanctioned last Monday by the US Treasury owing to its connections with facilitating cyber crimes, especially for North Korean hackers. 

The crypto mixing platform enables its users to obscure the inflow and destination of crypto asset transfers. And this has increased the crimes of money laundering on its platform significantly. The statement of the US Treasury notes that its investigations have revealed that Tornado Cash has facilitated the crimes of money laundering on its platform to the tune of $7 billion. 

Several hacks that have hit the crypto ecosystem have had connections with Tornado Cash continually. 

The mixing platform, however, does not deploy due diligence in ensuring that a thorough investigation of the origin and destination of the transactions that take place on its platform is done. This hinders the tracking down of criminal activities. This oversight has now attracted sanctions from the US Treasury and a closer watch from the FIOD.

An affiliate team of the FIOD, Financial Advanced Cyber Team (FACT) launched a criminal investigation on Tornado Cash and suspects that the firm is guilty as claimed.  

The Dutch regulator, however, noted that, as the investigation progresses, several arrests will still be made. Adding that it will deploy all the measures possible to ensure a safe crypto environment for its citizens.

With the issued sanctions by the US regulator, users on the mixing platform have withdrawn their assets to a great degree, with deposits declining remarkably.

According to a report, following the sanctions, about 15% of the assets held by Tornado Cash have been withdrawn so far. Tornado Cash has however not issued any statements concerning the claims of the US Treasury and the Dutch regulator.

Tornado Cash Community Fund Signatories Relinquish their Positions

The sanctions on the cryptocurrency mixing protocol, Tornado Cash, by the US Treasury Department are causing more internal wranglings for the platform than projected.

In the latest update, the signatories to the protocol’s community funds have relinquished their role, automatically ceding control of the funds to the Decentralized Autonomous Organization (DAO).

Tornado Cash had a robust and functioning ecosystem before the US regulator’s crackdown. As revealed, the mixer recorded a transaction of about $7 billion through its life cycle, and in 2021, it established a community fund to reward contributors to the protocol.

With the sanctions, the community-elected signatories to this fund decided to part ways with Tornado Cash in a bid not to incur the wrath of the US regulators. As shown by the history on Gnosis Safe, two of the five signatories removed themselves on August 12, one left the DAO on August 13, and the last two signatories dropped the pen on August 14.

With their exit, the community fund is now totally under the control of the protocol’s DAO. Association with Tornado Cash may not bode well for anyone at this time as the fine ranges from $10 million to as much as a jail term of 30 years.

The core developer behind the Tornado Cash protocol, Alexey Pertsev, was arrested by Dutch Authorities a few days ago, showcasing the risk posed to anyone with connections to sanctioned crypto mixer.

In reaction to the news of the exodus by the community elected signatories to the fund, some are optimistic that the departure will grant more powers to the holders of the Tornado Cash native token. 

Even though the Treasury Department sanctioned Blender.io prior to Tornado Cash, the impact of the sanctions on the latter is more resounding, given its close-knit nature with key stakeholders in the broader crypto ecosystem.

Tornado Cash Developer Arrest Fuels Petition and Protests in Amsterdam

Following the placement of Tornado Cash’s crypto mixing service platform under the United States Treasury Department’s sanctions list, the protocol’s developer, Alex Pertsev, has also been nabbed by authorities in the Netherlands.

The arrest of Pertsev fueled a protest in Amsterdam on Saturday, with about 50 individuals carrying placards with the #FreeAlex. The essence of the protest and the online petition that started to demand his release was hinged on the fact that the creator of a website or item cannot be held responsible for the irresponsible usage of the assets they create.

This is the case with Pertsev with the prompt on Change.org, noting that the arrest is an attempt to discourage ingenious creativity within the open source software development space.

“Open-source software products have millions of users globally, while thousands of developers use open-source code in their projects. Open-source software is flexible and secure, as it can be audited, fixed, and improved by anyone,” the petition reads. “Now, Alex is being accused of creating open-source code used by Tornado Cash, a project under investigation in the US and Europe. But a developer has no control whatsoever over how their open-source code is subsequently used.”

The petition laid the basis with respect to how unjust the incarceration is, citing examples of how the developers of the Mozilla Firefox browser and VLC Media Player cannot be held responsible for how their platform is used. Daria Mironova, the original author of the petition, thus asked the public to get the petition signed by 2,500 and also encouraged participation in the protest that took place on Saturday.

The ultimate goal is to push the petition into a spotlight that will make it visible to local media; 2,500 signatures are needed to get this done, and as of the time of writing, the total accrued signatures have turned 1,755.

Tether Says Will Not Block Tornado Cash until it is Directed by Authorities

The broader cryptocurrency industry is subtly pushing back against the sanctions on Tornado Cash by the United States Treasury Department for facilitating the transaction of illicit funds.

In a new report by the Washington Post, USDT issuer, Tether has affirmed it will not be blockchain addresses linked to Tornado Cash unless explicitly asked to do so by the government.

Prior to seeking confirmation from Tether’s CTO Paolo Ardoino about its stance on blocking addresses linked to Tornado Cash, The Washington Post’s report was based on Dune Analytics data which shows Tether Holdings has not taken any actions against these wallet addresses.

“Tether has not been contacted by U.S. officials or law enforcement with a request” to freeze transactions with Tornado Cash, Ardoino said in a statement, adding that the company “normally complies with requests from U.S. authorities.”

Industry experts believe Tether may be in violation of the broader Office of Foreign Assets Control’s (OFAC) sanctions. While the embargo on Tornado Cash actually prohibits U.S. businesses or individuals from transacting using the crypto mixer, non-US companies that do business with Americans are also indirectly banned from aiding the operations of the smart contract-controlled platform.

The ban, in general, has been viewed through different lenses, one of which pushed Congressman Rep Tom Emmer to inquire from Treasury Secretary Janet Yellen why a piece of technology that cannot defend itself was sanctioned. 

While many industry analysts see defiance, Ardoino said the company, known for crossing paths with regulators over the shares on regulatory affairs, is in constant touch with the regulators and often complies with their requests.

“We have been cooperating on various freezes with U.S. law enforcement, including in the last two weeks after the OFAC public disclosure about Tornado Cash, and no specific request has been put to us related to freezing relevant Tornado Cash addresses,” he said.

It is yet to be seen whether OFAC will make the private request to halt transactions originating from Tornado Cash. Still, from current events, more clarity may be given on how private companies are required to cooperate with the sanctions.

Tornado Cash Used to Siphon $500k from Hacked DAO Maker – PeckShield

Blockchain Security Company PeckShield and Crypto Security Specialist, CertiK have announced that a hacker laundered $500,000 DAI stablecoins via Tornado Cash.

The leading crypto security firms disclosed via a Twitter post that the laundering is connected to an Ethereum wallet address suspected of a similar exploit in 2021. 

Meanwhile, DAO Maker, a crypto funding website, experienced a hack on its website in August 2012. The hack happened as a result of a bug on the platform smart contract. More than $7 million worth of stablecoins was carted away by the hacker. The siphoned funds were disbursed to addresses authorized by the hacker. 

A few months after the event happened, one of the addresses that were flagged by Etherscan as one of the exploiters of DAO Maker transferred $500,000 worth of DAI stablecoins through Tornado Cash. Hackers often funnel stolen assets through Tornado Cash because it allows them to obscure the transactional activity. 

OFAC Sanctions Tornado Cash  

Interestingly, as a result of the United States Treasury Department of Foreign Assets Control, (OFAC), the sanction of Tornado Cash made headlines recently. As a result of the sanctions, the application is not accessible to any US-based persons or organizations due to its potential for money laundering.

No real change has occurred, even though the government has pronounced sanctions on individuals that violate the sanction. The application has not ceased to experience usage by hackers of decentralized finance protocols, as seen on Thursday and in other recent happenings. 

On August 19, blockchain security firm PeckShield revealed that an address connected to a December 2021 Grim Finance scam had transferred about $3.3 million into Tornado Cash. Subsequently, on September 6, the MonoX Finance scammer utilized Tornado Cash to launder $2.1 million

Initially, Tornado was developed with the intention of protecting the privacy of Ethereum users, but it has now been compromised by hackers who laundered money through the platform illegally.

As per a study by the United States Treasury Department, since Tornado’s establishment in 2019, nefarious criminals, including North Korea’s Lazarus crime syndicate, have exploited it to transact more than $7 billion worth of cryptocurrency.

US Treasury Updates FAQ on Sanctioned Tornado Cash

US regulator said a specific license must be obtained from the Office of Foreign Assets Control (OAFC) and provide information in detail with necessary verification for those Tornado Cash’s users who have funds locked up on the platform to complete transactions.

Since the digital currency mixer Tornado Cash was sanctioned by the United States Treasury Department’s Office of Foreign Assets Control (OFAC), a number of controversies have emerged as it relates to the allowance of Americans who may want to associate with the wallet.

According to the updated FAQ published by the Treasury Department, some of Tornado Cash’s users who have funds locked up on the platform may still be able to complete their transactions. The regulator said to complete these transactions, a specific license must be obtained from the OFAC. Detailed information about the transactions must be provided for all necessary verification.

The Treasury Department also assured the public that no one will be prosecuted for sharing the codes of Tornado Cash and that they can be used in an educational setting.

“U.S. persons would not be prohibited by U.S. sanctions regulations from copying the open-source code and making it available online for others to view, as well as discussing, teaching about, or including open-source code in written publications, such as textbooks, absent additional facts,” the FAQs posted on September 13 reads.

There has been a lot of controversy surrounding the Tornado Cash sanctions, with protests and lawsuits filed by industry stakeholders. In one of such lawsuits being bankrolled by Coinbase Global Inc, the argument put forward is that the sanction of a piece of code can set a bad precedent for the broader tech ecosystem.

With many demanding the release of Alex Pertsev, the core developer of the Tornado Cash protocol, a lot of people have reacted in fear of facing related sanctions. This fear fueled the withdrawal of funds from the wallet as data shows deposits on the platform dropped by as much as 80% a few days after the sanctions were pronounced.

The recently published insights in the FAQs are targeted to offer many people clarity on the grey areas that were otherwise left unaddressed with the sanctions.

US Treasury Imposes Sanctions on Iranian-Linked Ransomware Gang

The United States Treasury Department, through the Office of Foreign Asset Control (OFAC), has updated its sanctions list with new targets focusing on ransomware gangs affiliated with the Iranian military. 

Specifically, the OFAC sanctions list included as many as ten individuals and two companies affiliating with Iran’s hacking and cybercrime activities. According to the US Treasury, almost all of the individuals sanctioned are known to have defrauded some American entities in the past.

“This IRGC-affiliated group is known to exploit software vulnerabilities in order to carry out their ransomware activities, as well as engage in unauthorized computer access, data exfiltration, and other malicious cyber activities,” Treasury’s announcement said. 

The sanctions meted out also included 7 Bitcoin (BTC) addresses, a move that reinstates the US’s stance against using crypto by the Iranian government.

The United States Treasury Department has come under the radar recently as the regulator has intensified its enforcement actions against crypto-linked cybercriminals. Beginning with the sanctions placed on Blender.io cryptocurrency mixer back in May this year on account that it was linked to the North Korean cybercriminal ring, Lazarus Group.

The Treasury Department also placed Tornado Cash on its sanctions list, claiming that as much as $7 billion has been laundered through the crypto mixer since it was created. The Tornado Cash sanctions have raised a lot of uproars as industry stakeholders faulted the Treasury Department for sanctioning a piece of code, setting an unhealthy precedent for the industry.

The regulator has been dragged to court on this matter, and the major digital currency trading platform, Coinbase Global Inc, is named as one of the entities bankrolling the lawsuit. While this is a very rare antagonism to the powers of the US treasury, the argument is a testament to the solid conviction and solidarity in the crypto ecosystem to protect some of its most ingenious privacy protocols.

Tornado Cash's Alex Pertsev to Remain in Custody as Appeal Was Rejected

Legal authorities in the Netherlands have rejected the appeal to release Alexei Pertsev, the chief developer of the Tornado Cash protocol was arrested and remanded by Dutch Authorities shortly after the United States Treasury Department sanctioned the protocol alongside as many as 44 of its associated addresses.

The rejection of the appeal was faulted by Ksenia Malik, the wife of Alexei who noted that injustice was evident as the authorities did not even hear the appeal of the embattled developer. Citing her fears, Malik said the authorities are planning to auction Alexei’s properties with plans to leave her with nothing.

According to the current state of things, Alexei is likely to stay in custody until the end of November before the next hearing. When asked whether the Dutch officials can confiscate the personal properties of an untried suspect, Malik said the current actions of the prosecutors show they can.

“At the moment, only a car, but I think they can come and take something else at any moment. I don’t feel safe,” she said. Prosecutors will sell “all of our legal property at auction, leaving me with nothing.”

The arrest of Alexei Pertsev has sparked a lot of protest amongst crypto advocates as the sanction of Tornado Cash has also been condemned by a coalition of industry stakeholders. The defense is that Alexei should not be held accountable for developing an open source code, irrespective of how it is used by people.

Tornado Cash is used as a cryptocurrency mixer that can be used to obfuscate the origin and destination of funds in a bid to enhance user privacy. While notable personalities like Ethereum co-founder, Vitalik Buterin said they have used the mixing tool to shield their identities in the past.

However, the Treasury Department said the protocol has been used to launder as much as $7 billion with some linked to the North Korea hacking syndicate, Lazarus Group.

Flashbots Co-Founder Stephane Gosselin Resigns Following Disagreements with Colleagues

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Stephane Gosselin, the Co-Founder of Flashbots, announced on Friday that he has resigned from the Maximal Extracted Value (MEV) service following disagreements with the team.

Gosselin disclosed that he left working for the maximal extracted value (MEV) business last month because of differences with the team. However, it is still unclear which position he left at work – he has been serving as a Co-founder, General Manager, and Board Member at Flashbots.

While Gosselin did not reveal the details about his fallouts with his colleagues at work, he expressed his pride in the project’s accomplishments. He said maintaining censorship resistance is essential for a diversified and competitive MEV environment.

“In the short term, I am hopeful that validators will avoid connecting to relays that perform censorship. Blockspace suppliers putting economic pressure against censorship will go a long way to making sure it does not become ubiquitous,” Gosselin stated.

Flashbots, which was co-founded by Stephane Gosselin and Phil Daian in 2020, is a research and development company focused on Maximal Extractable Value (MEV). MEV is the profit that a miner or validator can make through their ability to arbitrarily include, exclude, or re-order transactions from the blocks they produce.

Flashbots made headlines in August when it blacklisted wallets associated with Tornado Cash sanctioned by the U.S. Treasury Department, a move that sparked an outcry from the Ethereum community members. Flashbots open-sourced some of its MEV-Boost code in response to the U.S. Treasury’s sanction of the Tornado Cash protocol in August, highlighting that its U.S.-based team must comply with the legislation.

While some Ethereum community members welcomed Flashbots’ decision, others were not thrilled with the move. Tornado Cash had been using Flashbots to improve upon the use of meta-transactions for user withdrawal UX.

Flashbots specializes in addressing MEV (Maximal Extractable Value) – an arbitrage trading strategy – in which validators and miners manipulate the order of on-chain transactions to reap profits by taking advantage of price differences. Besides that, Flashbots hosts private channels that prevent Ethereum users’ transactions from being viewed in a public mempool, thus protecting them against attacks targeting to extract MEV.

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