Key Takeaways:
- Despite the US Treasury’s 2022 sanctions targeting the crypto mixer for facilitating over $7 billion in illicit transactions
- Overall transaction volumes decreased, the total value deposited for most pools actually increased relative to pre-sanction levels.
In 2022, the US Department of the Treasury imposed sanctions on Tornado Cash, a popular cryptocurrency mixer, alleging that the platform facilitated the laundering of over $7 billion in illicit funds.
Despite these stringent measures, a recent report from the Federal Reserve Bank of New York reveals that Tornado Cash continues to be a key player in the crypto privacy landscape.
Following the sanctions announcement, Tornado Cash experienced an immediate and significant decline in transaction volumes. Both the number of transactions and the total value moved through the platform saw sharp drops.
Additionally, the diversity of users, measured by the number of unique addresses interacting with Tornado Cash, plummeted in the weeks after the sanctions were enforced.
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Despite the initial setbacks, the Federal Reserve Bank of New York’s report indicates that Tornado Cash’s anonymity pools have managed to sustain their size. While the largest pools never fully recovered to their pre-sanction levels, smaller pools saw a rebound in activity.
This suggests that retail users continue to find Tornado Cash attractive for maintaining transaction privacy. The ability of these pools to remain substantial underscores the platform’s resilience and the persistent demand for privacy tools in the cryptocurrency market.
The report highlights an interesting trend: although overall transaction volumes decreased, the total value deposited in Tornado Cash addresses for most pools actually increased relative to pre-sanction levels.
This phenomenon points to a shift in user behavior, where smaller and more frequent transactions may be compensating for the reduced number of users.
The sustained interest from retail users indicates that Tornado Cash remains a relevant tool for those seeking anonymity in their digital transactions.
The Federal Reserve Bank of New York’s findings also touch on the technical aspects of how Tornado Cash transactions are handled within the Ethereum blockchain.
In September 2022, six Ethereum blockchain users filed a lawsuit against the Office of Foreign Assets Control (OFAC), challenging the authority to designate Tornado Cash as a specially designated national (SDN).
However, a Texas federal judge ruled in September 2023 that the sanctions were legally permissible, affirming the Treasury’s authority to impose such measures.
While block proposers include Tornado Cash transactions, block builders are increasingly excluding them, reflecting a cautious approach to validating these transactions. This dynamic highlights the ongoing tension between maintaining blockchain integrity and enforcing regulatory compliance.
