Analysts point out the ambiguous effect of sanctions against Tornado Cash

Despite the decline in deposits after the restrictions imposed by the US authorities, the service is still available for use

10.01.2023 - 07:15

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What’s new? Analytics company Chainalysis has published a report, according to which the US sanctions aimed at the Tornado Cash crypto mixer failed to completely stop its use, although it hampered the service’s operation. The document said that within 30 days after the restrictions took effect, the overall inflow of funds to the platform dropped by 68%. Chainalysis pointed out that the illegal use of Tornado Cash was mostly due to hacking and fraud, with an average of 34% of all inflows.

Chainalysis’ report

What else did the report say? However, the company also emphasized that Tornado Cash is a decentralized platform based on smart contracts, and therefore “no person or organization can “pull the plug” as easily on Tornado Cash as they could with a centralized service.” Chainalysis cited the example of the dark web marketplace Hydra, which, in contrast, faced a drop in cryptocurrency inflows to zero after German police seized its servers as a result of sanctions.

Chainalysis explained that the sanctions imposed on Tornado Cash resulted in the site’s front-end being shut down, but “its smart contracts can run indefinitely, meaning anyone can still technically use it at any time.” This suggests that sanctions against decentralized services act more as a tool to discourage rather than completely stop their use, the report says.

On August 8, the US Office of Foreign Assets Control (OFAC), part of the Treasury Department, put Tornado Cash on the sanctions list. Later, the service’s developer, Alexey Pertsev, was placed under arrest in the Netherlands. In the US, Tornado Cash was also linked to the DPRK’s nuclear program. On August 12, The Block Research reported that Tornado Cash deposits fell by 79% as a result of sanctions.

LianAn Technology reported that the decentralized finance (DeFi) sector lost $3,64 billion in hacking attacks in 2022, of which $1,4 billion was laundered through Tornado Cash.

To find out what awaits DeFi projects after the sanctions against Tornado Cash, see GetBlock Magazine’s article.

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