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A U.S. appeals court ruled that the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) acted outside its authority when it sanctioned crypto-asset mixer Tornado Cash in 2022 and accused it of helping launder over $7 billion for North Korean hackers and other malicious cyber actors. Crypto-asset mixers are anonymized software tools that allow users to conceal the source or owner of digital assets. OFAC blacklisted Tornado Cash after concluding it was helping launder proceeds of cyber crimes, including more than $455 million stolen by the Lazarus Group, a North Korean government-backed hacking group. The ruling said that federal law only gave OFAC the authority to regulate property, which Tornado Cash's immutable crypto-mixing smart contracts did not constitute. https://drive.google.com/file/d/1x3im8DdYdItlP6Hw4VF5JiBV1ccuKE6X/view

On March 21, 2025, the U.S. Treasury delisted Ethereum coin mixing service Tornado Cash from its list of parties sanctioned by the Office of Foreign Assets Control (OFAC) reversing course after first blacklisting the service in 2022. The removal was actually a bit tardy because the Treasury had been required to remove it by March 17, 2025. In November, a fifth circuit judge ruled that the Treasury had overstepped its authority by targeting Tornado Cash's smart contracts. The judge wrote that autonomous software cannot be classified as property and therefore cannot be sanctioned. Subsequently, Department of Justice prosecutors asked for and given until March 17, 2025 to remove Tornado Cash from the OFAC black list.

The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, a crypto-asset mixer that mixes potentially identifiable or "tainted" cryptocurrency funds with others, so as to obscure the trail back to the fund's original source. OFAC claims that Tornado Cash has been used to launder more than $7 billion worth of virtual currency since its creation in 2019. The sanctions mean U.S. crypto investors can no longer use Tornado Cash. 38 ETH addresses and 6 USDC addresses were added to OFAC's Specially Designated Nationals (SDN) list. Circle, the issuer of the USDC stablecoin, reportedly froze over $75,000 worth of USDC funds linked to those 6 USDC addresses. Several leading figures in the crypto industry expressed their concerns about the sanctions.

"All ether that's touched Tornado Cash is now tainted. US-touching crypto exchanges, such as Coinbase, will be expected to block tainted ether. Infura, the ConsenSys API that almost all Ethereum transactions go through, is also blocking ether that touched these addresses. Alchemy, a similar API, is doing the same. [Crypto Briefing] Circle, which issues the USDC stablecoin, has blacklisted all Tornado Cash addresses, and frozen 75,000 USDC."

"The U.S. Department of the Treasury has answered some questions on regulatory compliance relating to Tornado Cash, a recently sanctioned crypto mixer. The answers include how to withdraw crypto or complete transactions initiated using Tornado Cash prior to its sanction and how to deal with "dusting" transactions."

This St. Louis Fed article explores non-custodial crypto asset mixers such as Tornado Cash. We analyze what types of mixers exist and how they work. We discuss opportunities and risks and offer an approach, based on voluntary disclosure, that would allow financial market regulators to combat money laundering and illicit activities, while allowing honest users to interact with privacy-enhancing protocols. We explain how crypto asset mixers play an important role on public blockchains and that privacy may be difficult to attain without them.

"This St. Louis Fed article explores non-custodial crypto asset mixers such as Tornado Cash. We analyze what types of mixers exist and how they work. We discuss opportunities and risks and offer an approach, based on voluntary disclosure, that would allow financial market regulators to combat money laundering and illicit activities, while allowing honest users to interact with privacy-enhancing protocols. We explain how crypto asset mixers play an important role on public blockchains and that privacy may be difficult to attain without them."

It's a mistake to defend DAOs on the grounds that code is free speech. Some code is speech, but not all code is speech. And code can also directly affect the world. DAOs, which are in essence autonomous golems, made from code rather than clay, make this distinction especially stark. This will become even more important as robots become more capable and prevalent. Robots are even more obviously golems than DAOs are, performing actions in the physical world. Should their code enjoy a safe harbor from the law? What if robots, like DAOs, are designed to obey only their initial instructions, however unlawful-and refuse all further updates or commands? Assuming that code is free speech and only free speech, and ignoring its functional purpose, will at best tangle the law up in knots. Tying free speech arguments to the cause of DAOs like Tornado Cash imperils some of the important free speech victories that were won in the past. But the risks for everyone might be even greater if that argument wins. A world where democratic governments are unable to enforce their laws is not a world where civic spaces or civil liberties will thrive.

The Federal Reserve Bank of New York (NY Fed) published a study of the impact and effectiveness of regulation in decentralized systems, using sanctions imposed in 2022 by the U.S. Department of Treasury's Office of Foreign Assets Control (OFAC) on the Tornado Cash (TC) crypto-asset mixer. It documented an immediate and lasting negative impact on TC following the sanction announcement. This conclusion was based on tracking Ethereum block proposers and the builders responsible for selecting transactions for settlement. Many large builders cooperated with the sanctions. A couple of builders who did not comply with the sanctions, acting for philosophical reasons rather than monetary motives, were responsible for most of the ongoing TC transactions. https://www.newyorkfed.org/research/staff_reports/sr1112.html

"Regardless of the justifiable arguments against yesterday's activity, OFAC remains a strict liability offense and, for now, funds in Tornado Cash pools are frozen and US citizens cannot interact with funds that have a connection with Tornado Cash. Users should review all of their addresses to see if any have such connections."

"What's stopping anyone from redeploying the Tornado Cash contract on a new, non-sanctioned address? Technically nothing. But there are a slew of reasons - legal and technical - why it may not be in an individual's best interest to challenge the will of the U.S. government."

Crypto privacy mixer Tornado Cash drew attention last week after the U.S. Treasury Department sanctioned the service. The implications of complying with the sanctions are starting to sink in with the rest of the industry, raising questions about just what compliance looks like.

Coinbase is openly processing Ethereum transactions involving Tornado Cash, a piece of blockchain infrastructure that was sanctioned by the the U.S. Treasury's Office of Foreign Assets Control (OFAC) for providing mixing services to North Korea. Meanwhile, Kraken doesn't process any Tornado Cash transactions. The difference is that Coinbase operates its trading venue in a way that complies with OFAC regulations, but not its validation service, whereas Kraken does. This leads to some thorny questions for OFAC that JP Koning discusses...

JP Koning shared his thoughts on the court's recent decision that Tornado's smart contracts, the immutable ones, are not sanctionable.

It's not clear that the Tornado mixer sanctions actually outlaw reciting code, but they do include what appears to be the first-ever ban on interacting with blockchain addresses controlled by self-executing code (sanctions normally ban transactions with accounts controlled by specific people or entities). And as crypto advocates mull legal challenges to the sanctions, they're homing in on First Amendment objections. A showdown over the constitutionality of the sanctions would reopen decades-old questions about the legal status of code. In all likelihood, it would be just the first major skirmish in a broader fight over the First Amendment's application to blockchain systems, one that crypto advocates have been anticipating for years.

"If a decentralized blockchain protocol is worried about being shut down by the authorities, how can it defend itself? A recent discussion surrounding MakerDAO explores this question. MakerDAO (or just Maker) issues the Dai stablecoin, of which there are around $7 billion in circulation. Rune Christensen, the founder of Maker, sees a precedent for a clampdown on Maker in the US Treasury's recent sanctions on Tornado Cash, a mixer. He worries that the authorities may try to shut down Maker by seizing its assets, specifically its real-world assets, or "RWA." To counter this threat, Christensen suggests that Maker turtle into what he calls phoenix stance:"

The Federal Reserve Board (FRB) published an article on crypto-asset censorship resistance, focusing on settlement layer cooperation by block proposers. It found that, although public permissionless blockchains are designed to be censorship resistant, even blockchains with broad user bases are not immune to the potential for certain transactions to be excluded due to external pressure. Further, concrete design features-such as financial incentives, which are intended to permit the expression of views, however controversial-do not appear to be effective in strengthening censorship resistance. However, system censorship resistance seems to be reinforced by the large players who value censorship resistance as a primitive feature.