Quick question: remember when the U.S. Treasury was breathing fire on Tornado Cash like an angry dragon guarding its hoard? Well, apparently the fire’s out—for now, anyway.
Here's What Actually Happened
According to a court filing that dropped late Tuesday night (seriously, these things always pop up when I’m halfway through a Netflix binge), the Treasury Department has agreed to dismiss its remaining legal claims tied to the Ethereum coin mixer Tornado Cash. The move comes roughly six months after the Office of Foreign Assets Control (OFAC) quietly removed the heavy-duty sanctions it slapped on Tornado Cash back in August 2022.
If you’re keeping score: those sanctions froze an estimated $437 million worth of ETH and various ERC-20 tokens linked to addresses that used the mixer. Since then, daily volume on Tornado Cash plunged from an average of ~$40 million pre-sanction to under $5 million (Dune Analytics data). Translation: users noped out hard.
Wait, Didn’t Treasury Just Nuke Tornado Cash?
Yeah, that’s what I thought too. OFAC originally argued that North Korean hackers—hi Lazarus Group—washed over $455 million in stolen crypto through the service. That’s why everyone freaked out: Circle black-listed USDC, GitHub suspended the repo, and DevCon conversations turned into group therapy sessions about regulatory doom.
Fast-forward to now, and the Treasury’s basically saying, “Meh, we’re good.” Why? Federal attorneys claim their policy goals were achieved once Tornado Cash’s sanctions were lifted because the wallet addresses “no longer pose a current threat.” I’m paraphrasing, but that’s the gist.
How the Lawsuit Fell Apart
The case stemmed from a bunch of privacy-minded devs (remember Coinbase bankrolling that lawsuit?) who argued that sanctioning software code instead of a person or entity was unconstitutional. The judge didn’t totally buy it, but the fight dragged on. Instead of pressing for a final ruling, the Treasury’s lawyers just moved to dismiss—no settlement money, no admission of fault, nothing.
“The government maintains full discretion to re-designate Tornado Cash addresses in the future.” – Excerpt from the dismissal motion
Notice that caveat? Yeah, it’s basically legalese for we can still drop the ban-hammer if we feel like it. Keep that in the back of your mind.
Now Here’s the Interesting Part
Everyone I’ve chatted with in Telegram groups is asking the same thing: Does this mean mixers are safe again? My gut says no. Tornado Cash’s core smart contracts are still open-source, but the relayers, front-ends, and dev team remain scattered like shards of an NFT after a rug pull. Plus, two core contributors—Alexey Pertsev and Roman Storm—are still facing criminal charges in the Netherlands and the U.S., respectively.
Regulators got what they wanted: a chilling effect. TVL on Tornado Cash sits around $137K as of today (down from $1.6 billion at its 2021 peak). That’s basically couch change in DeFi terms. Even if you’re a legit privacy nerd, you’re probably thinking twice before hitting that “Deposit” button.
Why This Matters for Your Portfolio
Okay, so maybe you’re not planning to use Tornado Cash to hide your BAYC royalties. But there are broader ripple effects here:
- ETH Regulatory Overhang: Every time Uncle Sam flexes, ETH tanks. We saw a 6% dip right after the 2022 sanctions. This dismissal removes one fear catalyst—temporarily.
- Privacy Protocols: Projects like Aztec Network, Railgun, or even zkSync are side-eyeing regulators right now. They could either double down on “compliant privacy” (lol) or go full cypherpunk.
- VC Appetite: I’ve noticed some funds re-opening their investment memos for privacy tech. One partner at Polychain told me, “If Tornado walks, our risk calculus changes.” Fair point.
I’ll Admit I’m Still Confused
Why walk away now? The timing is sus: the SEC is knee-deep in its own battles with Coinbase, Binance, and whoever sneezes in a DeFi discord. My tinfoil-hat theory: the Treasury wants to conserve political capital for bigger fights, like stablecoin legislation or CBDC rollouts. Last thing they need is another headline that screams “Government vs. Open-Source Developers.”
Also—small tangent—does this put OFAC’s earlier sanctioning method in legal limbo? If you can sanction code and then un-sanction it with zero consequences, that’s basically Schrödinger’s regulation. It exists and doesn’t exist until a judge forces you to open the box.
Where Do We Go From Here?
My crystal ball is smudged, but let’s speculate:
- Short-Term Relief Rally? ETH price popped 2% on the news. Meh, could be noise. But if you’re trading the news, watch for a follow-through this week.
- Legal Precedent: You can bet the EFF and Coin Center will wave this around in future courtrooms: “See? Even the Treasury walked away.”
- New Mixers, New Targets: Code is forkable. Someone’s already cooking up “Cyclone Cash 2.0” on Telegram. Will Treasury chase every fork? Probably not, but a few AP News headlines can scare off casual users.
Bottom line? The government’s playbook looks more like vibes-based enforcement than a rigorous strategy. If crypto privacy is your jam, don’t pop champagne yet—keep the cork handy.
Let’s Wrap This Up
I’m honestly relieved for the devs who no longer have to burn legal fees just to prove open-source code isn’t evil incarnate. But I’m also realistic: the regulatory spotlight is fickle, and Tornado Cash could find itself back on stage faster than you can say “zk-snarks.” Stay nimble, keep an eye on those wallet addresses, and maybe hold off on the mixer memes—at least until we see if the Treasury’s peace offering sticks.
TL;DR: The dragon’s asleep, not dead. Don’t leave your hardware wallet unguarded.
