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Tornado Cash Sanctions Didn’t Overstep U.S. Treasury’s Authority, Judge Rules

The recent legal clash between crypto enthusiasts and the U.S. Treasury has sent ripples through the financial tech sector. At the heart of this controversy is Tornado Cash, a crypto-mixing service. But what led to this suit, and why did a significant player like Coinbase get involved?

Understanding Tornado Cash and Its Significance 

Tornado Cash isn’t just any service in the crypto world; it’s a mixing platform to ensure transactional anonymity. For many, it represents what cryptocurrencies promise: privacy and autonomy.

Representing the U.S. District Court for the Western District of Texas, Judge Robert Pitman opined that Tornado Cash possesses a tangible interest in its smart contracts. Contrary to some arguments, the judge firmly believed that Tornado Cash is legitimate.

A significant point of contention was the role and nature of the Decentralized Autonomous Organization (DAO) overseeing Tornado Cash. With its voting mechanism, Judge Pitman emphasized that the DAO showcases an agreed common purpose, drawing parallels with corporate stockholders.

Sanctions and Their Basis

The U.S. Treasury, through its Office of Foreign Asset Control (OFAC), imposed sanctions on Tornado Cash. The primary reason? Allegations of it being exploited by evil groups, including North Korea’s Lazarus Group. They were accused of using Tornado Cash to clean crypto assets pilfered from decentralized platforms and popular games such as Axie Infinity.

The Treasury’s actions didn’t go unnoticed. Coin Center, a crypto advocacy group, quickly initiated a legal challenge. Notably, within a month, Coinbase, a leading crypto exchange, backed another lawsuit. Their Chief Legal Officer, Paul Grewal, signaled potential support for an appeal, voicing his concerns on X.

The lawsuit’s outcome has broader implications for the crypto industry’s future. As the digital currency landscape evolves, the balance between regulatory oversight and crypto autonomy will remain a hot-button topic. Only time will tell where this delicate balance will settle.