The decentralized derivatives exchange dYdX confirmed the blocking of user accounts that had previously interacted with the mixing service Tornado Cash.
We were recently made aware of an issue related to Tornado that was causing many wallet addresses to be blocked from accessing our exchange. We have rectified this and you can read the full announcement here: https://t.co/h9TDZE1rne
— dYdX (@dYdX) August 10, 2022
The platform noted that it uses compliance services from a third-party provider to meet regulatory rules. After the US Treasury imposed sanctions against the mixer for laundering $7 billion, the provider flagged accounts linked to Tornado Cash. The exchange’s trading system activated the restrictions automatically.
Many accounts were blocked because a portion of the funds in the wallet (in many cases even negligible amounts) was at some point linked to Tornado Cash, the team said.
dYdX acknowledged that the sudden wave of blocks affected a substantial number of users who often did not know the origin of their funds and did not directly use the mixer.
The platform updated its compliance policy accordingly, which allowed certain accounts to be unblocked. However some restrictions on flagged funds remain, the team said.
As a reminder, dYdX does not have the ability to arrest customers’ funds. All users who deposit into the protocol can always withdraw assets and store them themselves, the platform said.
Earlier, to comply with sanctions, Circle placed on the blacklist 38 USDC addresses linked to Tornado Cash. One stablecoin operator blocked movement of at least 75,000 USDC.
Against this backdrop, the DeFi project MakerDAO began drafting a contingency plan in case the protocol’s main smart contracts come under government sanctions, according to The Defiant.
According to Daistats, USDC’s share in backing the DAI stablecoin is about 50%, at around $5 billion.
The publication noted that plans to reduce reliance on USDC are being considered by other DeFi projects as well.
Experts The Block noted that after sanctions were imposed and Tornado Cash’s site was blocked, the service’s daily transaction volume rose from $2.45 million to $2.99 million. They linked this to user protests sending many transactions, predominantly around 0.1 ETH.
An unknown actor launched a flashmob that, on August 9, circulated small amounts via the mixer to well-known individuals. Recipients included EthHub cofounder Anthony Sassano, crypto trader Loomdart, Coinbase CEO Brian Armstrong, TV host Jimmy Fallon, YouTuber Logan Paul, and Randi Zuckerberg.
The founder of Tornado Cash previously clarified that authorities blocked the static landing page of the site, but not access to the app.
Interesting that a static landing page url https://t.co/rXJRuyyEw1 was sanctioned but not urls which can be used to access the actual dapp.
— Roman Semenov 🌪️ 🇺🇦 (@semenov_roman_) August 8, 2022
Experts warned of mounting pressure on crypto-mixing services and the consequences of the sanctions against Tornado Cash.
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