Original Title: "Court Rules 'OFAC Sanctions on Tornado Cash' Illegal, TORN Skyrockets Over 10x"
Original Author: Nan Zhi, Odaily Planet Daily
This morning, Coinbase Chief Legal Officer Paul Grewal posted on X, stating: "Privacy wins. Today, the U.S. Fifth Circuit Court of Appeals ruled that the U.S. Treasury Department's sanctions on the Tornado Cash smart contract were illegal. For the cryptocurrency community and all who care about defending freedom, this is a historic victory." Uniswap founder referred to it as "an immutable smart contract prevailing over the Treasury in court."
Following the news, the Tornado Cash protocol's token TORN surged rapidly, rising from a low of $3.7 to a high of $43 within one hour.
What does the specific content of the ruling mean for users, the protocol, and related assets? Odaily will explain in this article.
Protocol Impact Analysis
Story Background
In August 2022, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) added Tornado Cash to the sanctions list (SDN), after which countries such as Germany, France, South Korea, and others conducted investigations, warnings, and sanctions on Tornado.
Regarding the U.S. OFAC sanctions, they can be summarized as follows:
· Access Prohibition, including shutting down the front-end website and prohibiting technical access;
· Interaction Prohibition, prohibiting various entities subject to U.S. jurisdiction, citizens, etc., from interacting with Tornado Cash, including financial institutions, cryptocurrency exchanges, wallet providers, etc.;
· Fund Flow Prohibition, preventing any inflow or outflow of funds related to Tornado Cash by U.S. financial institutions, cryptocurrency exchanges;
· Asset Freeze, assets owned or controlled by Tornado Cash within the U.S., including virtual currencies, are frozen.
In addition, in May 2024, one of the founders of Tornado Cash, core developer, 31-year-old Russian citizen Alexey Pertsev, was sentenced to 5 years and 4 months in prison in the Netherlands for laundering $2.2 billion on a cryptocurrency mixer platform.
In September of this year, the criminal case of Roman Storm, one of the developers of Tornado Cash, will go to trial. The U.S. Department of Justice has charged Storm and his colleague Roman Semenov with three counts, including conspiracy to launder money, operating an unlicensed money transmitting business, and violating the International Emergency Economic Powers Act, with charges related to assisting the North Korean hacker group Lazarus Group in laundering over $1 billion.
Court Ruling and Impact
Paul Grewal, Chief Legal Officer of Coinbase, stated: "Tornado Cash will be removed from the sanctions list, allowing Americans to once again use this privacy-enhancing protocol. In other words, the government's overreach will no longer be sustainable."
Hayden Adams, the founder of Uniswap, pointed out a key part of the judgment document: "We believe that Tornado Cash's immutable smart contracts (lines of code supporting privacy software) are not the 'property' of foreign nationals or entities, which means (1) they cannot be blocked under the IEEPA, and (2) OFAC has exceeded the power granted by Congress." (For a detailed analysis, see the last section)
Protocol Revenue and Token Impact
After being sanctioned by OFAC in 2022, Tornado Cash's TVL experienced a sharp decline, but due to historical accumulation and issues with the liquidity pool depth, Tornado remains the preferred mixer for hackers, and its TVL is steadily recovering.
Although the front end was banned, hackers directly call the on-chain smart contract for mixing, and whether sanctioned or not, this has little impact on these "core users." The author believes that the "revenue fundamentals" of TORN will not undergo significant changes due to the judgment, with the main influence on the token's price movement being changes in sentiment and confidence. Therefore, even though TORN surged tenfold this morning, it subsequently dropped nearly 70% in the following two hours, the reader is advised to focus on news and sentiment as the core factors in price judgment going forward.
Will Roman's Trial Have an Impact?
After the ruling of the Fifth Circuit Court of Appeals, users have consulted Consensys lawyer Bill Hughes asking, "Will Roman be released?"
Bill's response to this was: "This is a completely different matter. This is not to say that Tornado Cash is not a service, but to say that the immutable smart contract included in the platform's software is not a service. The U.S. Department of Justice stated that Roman operates a service that violates sanctions, illegally transfers funds, and facilitates money laundering, and this does not change those charges."
Key Points of the Ruling
This section specifically explains the logic and basis of the Fifth Circuit Court of Appeals' ruling that the U.S. Treasury Department's sanctions on the Tornado Cash smart contract were illegal. Readers can choose to read selectively.
Tornado Cash is Not a Service
OFAC's Claim: The smart contract is essentially a service because it can be used by users to perform specific types of operations (such as anonymous transactions).
Court's View: The immutable smart contract does not require any human intervention. Even according to the Treasury Department's definition, an immutable smart contract is merely code, and rather than calling it a "service," it is more accurate to say that it is a tool used to provide a service.
Tornado Cash is Not Property
Under the International Emergency Economic Powers Act (IEEPA), OFAC's sanction targets must be "property" or "property" in which a foreign person has an interest.
However, the Tornado Cash smart contract is an immutable, decentralized code that no economic entity can control. These smart contracts cannot be owned, and over a thousand volunteers participated in a trustless setup ceremony to "irreversibly remove anyone's ability to update, remove, or control the lines of code." Therefore, no one can exclude another's right to use the Tornado Cash pool smart contract. Even under the OFAC sanction regime, it is impossible to prevent North Korean hackers from extracting assets, so Tornado Cash is not considered sanctionable property.
Under the law, the government can only sanction objects that meet the definitions of "property" or "service." If something is neither property nor a service, sanctions lose their legal basis.
(Note: For details of the court ruling document, please see the original document.)
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