U.S. Treasury Department’s move to blacklist Tornado Cash is still causing havoc in the cryptocurrency community.
After discovering that some of its users had connected with Tornado Cash late on Wednesday, the decentralized derivatives exchange dYdX acknowledged that it had been impacted by the restriction. The project chose to block some accounts in retaliation.
A blog post stated that many accounts were blocked because a percentage of the wallet’s funds were connected to Tornado Cash, which the U.S. Treasury’s Office of Foreign Assets Control (OFAC) recently added to its list of sanctioned entities.
Tornado cash vs OFAC
The change comes after the Treasury’s Monday update, which confirmed that the Office of Foreign Assets Control had sanctioned Tornado Cash and the smart contracts it was linked to because of its involvement in numerous cryptocurrency-based cybercrimes. The action prevents all citizens of the United States from communicating with the protocol. According to the Treasury, the Ethereum mixing protocol failed to enact effective restrictions to stop criminals from money laundering.
Several crypto-based projects complied with the ban once it was announced, despite widespread outcry from the crypto community over the restriction’s nature and claims that the blacklisting code violated the right to free speech. GitHub, Infura, and Alchemy all restricted access for their users, and Circle froze 75,000 USDC that had been put to the protocol.
Although dYdX did not specify how many accounts remained prohibited, it claimed in a blog post that it had “unbanned certain accounts.”
As a result of the Treasury’s restriction, many Ethereum users who have ever utilized Tornado Cash may find themselves shut off from essential components of the cryptocurrency ecosystem. Due to the nationwide nature of the restriction, American-based organizations like dYdX and Circle are particularly noteworthy in this case. Outside of the United States, other initiatives with decentralized organizational structures are less likely to be subject to the sanctions.
Regulations from the United States have previously had an effect on dYdX users. The DYDX token from dYdX was airdropped to early adopters last summer, but those based in the U.S. were not included.
It was commonly believed that dYdX excluded U.S. residents from the offer in order to avoid the SEC accusing it of providing unregistered securities.