10X Research: Tornado Cash court ruling creates more clarity for Ethereum developers

What’s new? Analysts at 10X Research have said the US court’s ruling on crypto mixer Tornado Cash will positively impact the broader decentralized finance (DeFi) ecosystem and other protocols, especially in Ethereum, which remains the leading network for DeFi. “This could have enormous implications,” the company believes. The court found the sanctions against Tornado Cash smart contracts without an administrator key to be illegitimate as no one can manage them and therefore are not proprietary.

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What else is known? The November 27 ruling caused the value of DeFi protocol tokens and privacy-oriented coins to rise. The capitalization of the DeFi sector has grown by 18% since then to reach $108,8 billion, the highest since June. The capitalization of anonymous cryptocurrencies added 3% to surpass $6 billion. The native token of Tornado Cash (TORN) jumped 379% and is currently trading at $17,28, the highest since August 2022.

The lawsuit for abuse of power against the US Department of the Treasury was filed by six Coinbase employees with the support of the crypto exchange itself, which is the largest in the country. The court ruled that Tornado Cash smart contracts without an admin key cannot be blocked under federal law, but the ruling does not apply to other elements of the service.

“While the ruling does not endorse money laundering, it establishes a precedent allowing programmers to develop and release smart contract protocols without fear of sanction, provided they do not charge fees,” 10X Research writes.

Thus, the charges against the developers of the service were based on the fact that they facilitated the laundering of criminal proceeds, receiving fees for conducting illegal transactions.

This was written by the Dutch authorities in the case against developer Alexey Pertsev, who was sentenced to 64 months in prison. As well as by the US authorities in the case against co-founders Roman Storm and Roman Semenov — the former was arrested and later released on bail while being denied dismissal of the criminal case, the latter remains at large, and the proceedings themselves are ongoing.

After sanctions were imposed in August 2022, Chainalysis experts reported that almost half of the funds were coming to the mixer from DeFi protocols such as Uniswap, Aave, Ren, Oasis, Balancer, and dYdX.

Then some of them took preventive measures to avoid sanctions and started blocking authorization attempts from addresses that received transfers from the mixer, others themselves faced blocking from partner services checking the “purity” of addresses.

At the same time, someone sent coins from the Tornado Cash wallet to well-known representatives of the crypto industry as a sign of protest, after which they themselves faced blocking when trying to authorize in DeFi protocols.

The US federal court in its November 27 ruling also noted these risks. For example, Tornado Cash’s software continues to operate regardless of sanctions, and the blockchain allows transfers to be made without the recipient’s consent or knowledge. As a result, such a recipient will face legal and financial consequences.

Thus, the court’s decision may give developers more clarity on what products they can create without risking regulatory pressure, especially on the Ethereum network, where most decentralized applications (DApps) are hosted.