Original | Odaily Planet Daily (@OdailyChina)
Author｜Nan Zhi (@Assassin_Malvo)
This morning, Paul Grewal, chief legal officer of Coinbase, posted on X: “Privacy rights win. Today, the U.S. Fifth Circuit Court ruled that the U.S. Treasury Department’s sanctions on Tornado Cash smart contracts were illegal . This is a historic victory for cryptocurrency and all those who care about defending freedom. “The founder of Uniswap called it “immutable smart contracts defeated the Treasury Department in court.”
After the news came out, Tornado Cash protocol token TORN rose rapidly, rising from a low of $3.7 to a high of $43 within an hour .
What are the specific contents of the judgment and what impact will it have on users, protocols, and related assets? Odaily will explain in this article.
Interpretation of the impact of the agreement
Background
In August 2022 , the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) included Tornado Cash in its Sanctions List (SDN). Since then, many countries including Germany, France, and South Korea have investigated, warned, and sanctioned Tornado.
As far as the US OFAC sanctions are concerned, they can be simply summarized as follows:
Deny access, including shutting down the front-end website and prohibiting technical access;
Prohibit interaction, prohibiting all entities, citizens and other objects under the jurisdiction of the United States from interacting with Tornado Cash, including financial institutions, cryptocurrency platforms, wallet providers, etc.;
The flow of funds is prohibited, and any inflow or outflow of funds related to Tornado Cash is prohibited to US financial institutions and cryptocurrency trading platforms.
Freeze assets. All assets owned or controlled by Tornado Cash in the United States, including virtual currencies, are frozen.
In addition, in May 2024 , Alexey Pertsev, a 31-year-old Russian citizen and one of the founders and core developer of Tornado Cash, was sentenced to five years and four months in prison in the Netherlands for laundering $2.2 billion on a cryptocurrency mixer platform.
In September this year, the criminal case of Roman Storm, one of the developers of Tornado Cash, will enter the trial process. The U.S. Department of Justice charged Storm and his colleague Roman Semenov with three counts, including conspiracy to launder money, operating an unlicensed money transmission business, and violating the International Emergency Economic Powers Act, for assisting the North Korean hacker group Lazarus Group in laundering more than $1 billion.
Court ruling and impact
Paul Grewal, chief legal officer at Coinbase, said: “Tornado Cash will be removed from the sanctions list, and Americans will once again be allowed to use this privacy protection protocol . In other words, the government’s overreach will not continue.”
Hayden Adams, founder of Uniswap, pointed out the key content in the judgment document: "We believe that Tornado Cash's immutable smart contracts (lines of software code that support privacy) are not the "property" of foreign nationals or entities, which means that (1) they cannot be blocked under IEEPA and (2) OFAC exceeds the authority granted by Congress." (See the last section for detailed analysis)
Protocol Revenue and Token Impact
After being sanctioned by OFAC in 2022, Tornado Cash's TVL plummeted at one point, but due to historical sedimentation and funding pool depth issues, Tornado is still the preferred mixer for hackers, and its TVL continues to recover slowly.
Although the front-end was banned, hackers directly called the on-chain smart contract to mix coins, and the sanctions had little impact on these "core users". The author believes that TORN's "income fundamentals" will not change significantly due to the verdict, and the main factors affecting the rise and fall of tokens are changes in sentiment and confidence . Therefore, although TORN rose tenfold in 1 hour this morning, it fell nearly 70% in the next two hours . Readers are advised to focus on news and sentiment as the core basis for price judgment in the future.
Did Roman’s trial have any impact?
After the Fifth Circuit’s ruling was released, a user asked Consensys attorney Bill Hughes, “Will Roman be released?”
Bill responded : “That’s another matter entirely. It’s not that Tornado Cash is not a service, it’s that the immutable smart contracts included in the software that is part of the platform are not services. The DOJ said that Roman operated a service that violated sanctions, illegally transferred funds, and facilitated money laundering, which does not change those charges .”
Core content of the judgment
This section specifically explains the logic and basis for the Fifth Circuit Court’s ruling that the U.S. Treasury Department’s sanctions on Tornado Cash smart contracts are illegal. Readers can read selectively.
Tornado Cash is not a service
OFAC argues that a smart contract is essentially a service because it can be used by users to perform certain types of operations (such as anonymous transactions).
The court’s view: Immutable smart contracts do not require any human intervention. Even according to the Treasury Department’s definition, immutable smart contracts are just lines of code and are not so much a ‘service’ as a tool used to provide a service.
Tornado Cash is not property
Under the International Emergency Economic Powers Act (IEEPA), OFAC sanctions must target “property” or “property” in which a foreign person has an interest .
Tornado Cash's smart contract is an immutable, decentralized code that no economic entity can control. These smart contracts cannot be owned, and more than a thousand volunteers participated in a trusted setup ceremony to "irreversibly remove the ability of anyone to update, remove, or control these lines of code." Therefore, no one can exclude others from using the Tornado Cash pool smart contract. Even under the OFAC sanctions regime, North Korean hackers cannot be prevented from extracting assets, so Tornado Cash is not a sanctionable property.
In law, the government can only sanction objects that meet the definition of "property" or "services." If something is neither property nor a service, the sanction loses its legal basis.
(Note: For details of the court ruling, please see the original text .)
