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U.S. Sanctions Agency Blacklists Popular Mixer; Prompts Existential Questions About Crypto Sanctions

U.S. Sanctions Agency Blacklists Popular Mixer; Prompts Existential Questions About Crypto

The U.S. Office of Foreign Assets Control, or OFAC for short, created waves in the crypto sphere this week after adding a mixing service to its sanctions list. The service, Tornado Cash, is used to hide the origins and destinations of crypto assets. 

While mixers can have legitimate security purposes, tumblers are largely associated with money laundering – a distinction well-earned by the fact that nearly 10% of all transactions going to crypto mixers were identified as illicit by Chainalysis.

Enter: OFAC, the U.S’s teeth for enforcing sanctions. OFAC’s day-to-day is largely preventing countries such as Cuba, Iran, Venezuela, and North Korea from being able to play ball, especially with U.S-based people and businesses. The addition of Tornado Cash to OFAC’s registry is meant to go to the heart of some of these countries and malevolent players; some who are using crypto to dodge sanctions. 

And that’s because OFAC is no joke: engaging in business with persons or countries on the registry could bring six-figure penalties or decades of jail time. The office is scary, toothy, and effective.

That’s one reason why this issue has gotten a lot of coverage from crypto sites, tabloids, and financial media. Upfront, more than $437 million worth of funds have been immediately jeopardized in the Tornado Cash ecosystem – the majority of it, according to leading blockchain research firm Chainalysis, belonging to centralized exchanges and DeFi users.

However, the far bigger story is the conversation springing up around the OFAC sanctions and what it might mean for U.S. based investors. That’s because OFAC, and all its scariness that it usually expends pursuing state actors, is now squaring up with a “crypto privacy product.”

Related: The Four Horsemen of the Cryptopocalypse: Terra, Celsius, 3AC, and Voyager.

That could leave U.S persons at risk of accidentally violating these sanctions, not just because people can send Tornado Cash ETH to your address without your permission – but because the U.S. law has never discerned if stakers or miners (people who confirm transactions) might violate sanctions by approving transactions from them.

Either way, the vague importance of OFAC’s impact in crypto speaks yet again to its uncertainty. Crypto maximalists might just be freaking out about nothing, but something can’t be nothing until there are answers… and if there’s one thing to be said about scary regulators and government agencies, it’s that you can never have enough answers, especially about important topics like this.

But right out of the gate, the perplexing chaos of this crypto-related legality is being complicated by trolls. Some crypto funny guys have sent small amounts of mixed Tornado Cash ETH to celebrities and brands such as Shaq, Jimmy Fallon, Coinbase CEO Brian Armsttrong, and PUMA. And that’s just the tip of the iceberg: they’re also sending funds to Twitter users and strangers in an effort to serve up massive anxiety.

The takeaway?

Crypto continues to prove itself as an uncertain, controversial, turbulent asset… and not even in ways you would think of. That’s saying a lot given that the asset class has erased more than 60% of its value in recent months. We’ll cover this story as it develops, but these considerations might have a meaningful impact on perceptions and valuations in the crypto market.

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