On August 8, the US Treasury Department added the Tornado Cash service, specializing in increasing the confidentiality of transactions, and the associated addresses of crypto wallets to the sanctions list. The American authorities justified their decision by the fact that the platform was used to launder illegal crypto assets.
After sanctions were imposed against Tornado Cash, Circle, the issuer of the USDC stablecoin, blocked addresses associated with the cryptomixer, and Infura and Alchemy infrastructure platforms began to stop remote requests (RPC) coming to it. Infura APIs are used when working with most applications in the Ethereum ecosystem. Thus, if the protocol is cut off from Infura and Alchemy, it is isolated from a large part of ETH users.
The reaction of the community to these actions was mixed. Adherents of the main principle of cryptocurrencies — decentralization — believe that such decisions by centralized services undermine the foundations of the crypto space.
Eric Voorhees, CEO and founder of the Swiss ShapeShift platform, called on the MakerDAO community to immediately transfer funds from the USDC to another stable cryptocurrency that is more resistant to censorship.
Experts shared with RBC-Crypto different opinions on how the situation with the blocking of Tornado Cash addresses by the issuer of the stablecoin will affect the cryptocurrency community.
Eric Voorhees’ appeal is rather a very careless comment, the development director believes exmo.com Maria Stankevich. According to her, it is a very dangerous step to recommend withdrawing money from a stablecoin that blocks the addresses of an illegal cryptomixer. Laundering of illegal crypto assets is one of the most criticized aspects of the industry, so such blockages are important and useful for the market, the expert is sure.
She explained that for cryptocurrency owners, it is of great importance to be sure that the cryptocurrency is clean, which means it is important to use services that block dangerous transactions in advance.
The expert added that USDC is a very popular stablecoin in the United States, which has become actively bought up by users against the background of the fact that the provision of USDT, another major cryptocurrency tied to the US dollar, is not so transparent. According to Stankevich, blocking Tornado Cash will not affect either the USDC itself or other stablecoins in any way.
“I repeat repeatedly that the anonymity of cryptocurrencies ends exactly where the bridge to fiat currencies begins. Therefore, exchanges that have not introduced mandatory user verification, do not verify transactions and treat mixers well, walk on very thin ice: it is simply unsafe to store funds and trade on such exchanges,” Stankevich is sure.
It is quite possible that after such recommendations, a mass flight of investors from the USDC to the same bitcoin or Ethereum will begin, the head of the analytical department of AMarkets, Artem Deev, did not agree. American regulators have clearly made it clear to the crypto community that they intend to start tightly regulating the cryptocurrency market in the near future, the analyst explained.
According to him, this will have a negative effect on the crypto market, the mass investor will not make the most informed decisions. After the flight of private investors, the collapse may take the form of a funnel, the expert suggested.
“Fiat, gold, futures for raw materials, including agricultural, are assets in which investors can also start to leave. Simply because, against the background of uncertainty, many will want to have something more real in their hands than cryptocurrencies,” says Deev.
Dependence on the center
Circle Company will comply with all the regulations put forward by the US authorities, believes Aaron Chomsky, head of the ICB Fund investment department. He said that the main clients of this platform are large institutional investors who prioritize compliance with regulatory requirements.
According to the expert, the issue of compliance with sanctions is relevant for all issuers of centralized stablecoins, including for the controversial and popular Tether (USDT) among retail traders. Both Circle (USDC) and Tether have blocked stablecoins before at the request of regulators, Chomsky said.
The expert noted that the Tornado Cash case should be viewed in the context of an attack on user privacy. This will complicate the work of crypto platforms, which will have to tighten compliance requirements for processing transactions related to mixing services, the specialist added.
According to Chomsky, there will probably be difficulties for users who wanted to increase the privacy of their digital investments. The Tornado Cash smart contract is still available, although blocking Infura and Alchemy remote procedure call (RPC) requests together with blocking the service interface will create certain, but not critical difficulties for those who would like to continue using it, the expert explained. He drew attention to the fact that this also applies to intruders, but a decrease in the popularity of the service, if this happens, will facilitate the work of analytical services.
“Adding Tornado Cash to the sanctions list may spur the development of products with increased confidentiality. It actualized the high dependence of the second—largest cryptocurrency network on centralized services, which contradicts the spirit of digital assets,” Chomsky believes.