Crypto Crimes - Emergency Announcement

Tornado Cash Sanctioned

Yes, I’m still technically on vacation, something important happened and you need to read it.

DeFi Education made a free post on the matter which you can find here.

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The US Government is starting to figure things out, and wrapped assets (specifically wBTC) will become useless due to the centralized nature of how those tokens were wrapped. If you have wBTC, get out of it now.

WBTC is a custodial product offered by BitGo. BitGo companies are US based - BitGo Trust Company, Inc. is a trust company chartered in South Dakota and BitGo New York Trust Company LLC is a limited purpose trust company in New York. They *must* abide by OFAC sanctions of they will face massive fines and execs may face jail time.

We therefore expect redemptions for BTC to be suspended by the issuer for all tainted WBTC. There is no address blocking at the smart contract level. Tainted WBTC is worthless and is a risk for liquidity pools such as Curve who will exchange WBTC for e.g. renBTC unless these contracts are paused.

Liquidity Providers will likely end up as bagholders for blocked WBTC (and stablecoin) assets if they do not pull liquidity from DEX *immediately*.

There is approx $6 million of tainted WBTC that we have identified, but we haven’t had time to trace how much WBTC was moved out of Tornado after the sanctions were published. These funds would be tainted, too.

Since the TornadoCash contract addresses have been sanctioned, that means that any wallet that has transacted with those contract addresses will struggle to exchange assets to Centralized Exchanges and other US entities. Of course, you should always have been using a VPN when visiting the TornadoCash website, but that is especially necessary now.

You’ll still be able to use the stablecoins from/in TornadoCash, but I would recommend selling any USDC or USDT you own, as both of those entities have the ability to blacklist a wallet address which makes it unable to send or receive USDC or USDT, and those entities are both vulnerable to regulation from the US government, as I have discussed as a future consideration.

Similarly, fiat-backed and commodity backed stablecoins have very similar vulnerabilities. Tether, as an example, has a blacklist of wallet addresses that it can stop from sending or receiving USDT for any reason it wants. If a regulator were to pass a bill that required US residents to register their wallet address with their taxpayer identification number in order to not be blacklisted, this might vastly change how Tether decides to operate in the future.

The punishments for violating US sanctions can result in fines or prison time if the government is able to associate a wallet address with your identity or physical mailing address. These restrictions apply to all future interactions with these contract addresses, and can’t be retroactively applied in a legal sense.

My current advice is to get out of USDC, get out of USDT, and get out of wBTC. I also advise to never use Tornado Cash again, and to instead wait for a new token mixer to be coded and deployed (I would suspect this will occur soon). Be careful with any new token mixer, as deployments of new contracts and protocols is usually exploited by the unscrupulous to deploy scams on to people trying to shift to new protocols in a hurry without vetting them. I would expect for a few scam replacements to spin up to replace tornado cash, but in time I expect there to be numerous competing protocols to replace Tornado Cash and to be slowly sanctioned by the US Government. In much the same way that torrenting sites like PirateBay.org got taken down and then a new version pops up within a few days from a different domain, this is whats going to happen moving forward with token mixers.

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Going to go back to not writing anything until Sunday, hope you all continue to have a nice week and be cognizant of the adjacent impacts that might occur due to the sanctioning of assets traded through tornadocash. Impacts on wBTC, USDC, and USDT will be felt, and this is why my current thesis about Interoperability being the next trend is so important. The Decentralization of wrapped assets will represent a major trend in the coming bull market. I will provide another quarterly update on the subject next month, but you can go back and read the Q2 Macro update and think about it in light of the downstream affects to USDC, USDT, and wBTC.

The ultimate goal is for unsanctionable assets and a financial infrastructure that is entirely above the US government. That is what we are looking towards and trading around. My Macro outlook has not changed, and this sort of action from the US government was expected and inevitable.

I truly believe, that eventually, you will not have to sell crypto for Cash in order to use it in your everyday life. For now, we are biding our time.