Tornado Cash Sanction – What Does It Mean for The Future of DeFi? 

Tornado Cash was initially released in 2019. It is one of the completely decentralized apps based on Ethereum to support transactions privately. State Antony Blinken said that the administration of Biden would sanction Tornado Cash as part of the Decentralized Finance (De-Fi) program which is based on the Ethereum blockchain. It enables anonymous movement of cryptocurrency. The movement has sparked fury in the world of crypto because of the logic and manner behind it which was being carried out. The movement may signal a significant gvt. to crack down on space. 

Let us examine the circumstances behind sanctions that could mean for future decentralized finance. It is an emerging financial technology that is based on secure and distributed ledgers akin to being used by digital currency. It accepts user payments, combines them into the address, and then lets users withdraw money and move it to the second address of Ethereum. 

The mix of the Ethereum addresses that mean to the original owner could not be identified. Tornado Cash provides the mechanism for those who value their privacy to invest in crypto without having transactions made public. That makes transactions public by default. 

Reasons Behind the Tornado Cash Transaction 

More than $7 billion in user money has been mixed into the Tornado Cash aid so far. However, some major hacks utilized sites to launder the stolen money even though these bulk transactions were entirely legal and genuine. For example, Tornado Cash used to launder the proceeds of the Axie Infinity Ronin Bridge attack that took place in April 2020. It resulted in the theft of cryptocurrency of value over $400 million. 

To sanction this decentralized application, the government took control of all Tornado Cash addresses, including smart contracts and contribution addresses. It implies that anyone who is dealing with Tornado Cash may face charges and penalties for violating sanctions. Following the announcement of the ban, Circle, the parent of the stablecoin firm, immediately froze USDC, or digital dollar that is pegged to the currency in the US. It accounts on Tornado Cash and blocked connected addresses from utilizing USDC. 

The fact that Tornado is one of the most reputable and biggest stablecoins that can freeze accounts instantly, generated a great deal of criticism. The stablecoin is completely governed and centralized by a reputed firm with headquarters in the US. 

Some industry leaders worry that if USDC is compelled to freeze assets, it will kick off the chain reaction that may decline DeFi. For instance, USDC can be used to trade on the Uniswap, collateralize loans on the Aave, to provide part of the peg for Dai stable coin. 

The whole sector of DeFi would collapse if the government decided to ban all DeFi pillars as the next move, and compiled USDC. It is because trading in a decentralized fashion would not be viable and money would be frozen. It is one of the biggest risks to decentralized finance in the future. 

So, What’s Next? 

An authorized protocol, including Tornado Cash, will not completely perish the active Ethereum blockchain. In terms of the legislation of crypto, the decade has proved to be very crucial, and more restrictions and penalties that unavoidably exist on the horizon. 

It is unclear if it will have a big impact on the crypto market, but one thing is certain once they are released, these apps cannot be controlled completely. It alone improves Ethereum’s value proposition and other blockchains related to Layer 1.