Following the OFAC ban on Tornado Cash, major DeFi protocols including Aave, Uniswap, Balancer, Ren, and Oasis have blocked all the addresses associated with Tornado Cash, regardless of type.
That means wallets that receive funds from Tornado Cash are also blocked, whether you agree to get the funds or not.
Many prominent users fell into a whimsical crack where they received sanctioned Ethereum from Tornado Cash. According to last week’s report, a series of wallet addresses was sent 0.1 ETH from Tornado Cash.
What a Weird One
Although the prank didn’t make these people sanction violators, it led to another problem.
Justin Sun reported on Saturday that his account was officially front-end blocked by Aave protocol.
Anthony Sassano, a prominent personality in the Ethereum community, said on the same day that his access to Aave was also blocked. It’s noteworthy that Sun owns a large sum of the protocol’s TVL.
In the latest updates, users said their accounts were back.
According to an official statement by Aave, the team, in compliance with the regulatory decision, has implemented the API of TRM Labs to block addresses that have interactions with the mixing tool.
The execution accidentally affected users who recently received Tornado-derived “gifts.”
Many Questions Remain
The community started questioning Aave’s approach since it did not seem quite “decentralized” due to the lack of DAO voting. Aave has claimed the protocol remains decentralized and governed by the DAO.
“The Aave team’s top priority is building a safe & secure system for users. We integrated TRM’s API on the Aave IPFS frontend, which is why some users may be experiencing trouble accessing the Aave app, one of the frontends to the Aave Protocol.”
The reputation of DeFi projects has taken a bit of a dive due to the recent centralized-like actions. Rune Christensen, Maker’s founder, announced that developers and heads in the DeFi sector had joined a call to approach the Tornado Cash case.
Meeting participants include highs up from Circle (USDC), Maker, Coinbase exchange, Uniswap, Aave, Compound, and dYdX.
In the meantime, one of the most pressing concerns is the potential for malicious actors to weaponize Tornado Cash in order to get user or project wallets blocked from accessing dApps.
Blanket blocking wallets by Aave or similar dApps can lead to dangerous situations for legitimate cryptocurrency and NFT projects because there is no way to deny incoming Tornado Cash transactions.
These situations can put the projects at risk of being shut down.
Tornado Cash is Under Fire
After being blacklisted by the U.S. Department of the Treasury a week ago, Tornado Cash found itself in the headlines of many coverages.
The news has caused contention within the DeFi community, with some members agreeing with the decision made by the government and others disagreeing.
The Ethereum mixing tool has gained a lot of popularity due to the fact that it is open-source and completely decentralized. It gives users the ability to deposit ETH or other ERC-20 tokens that are supported.
After that, the Ethereum will be muddled up and sent back to the user by the project, at which point the user’s financial transactions will have effectively been erased almost entirely in order to increase their level of privacy.
Following the shutdown order issued by the United States, a number of entities within the DeFi and blockchain array blocked TC transactions.
These entities included Circle, which is the issuer of USDC stablecoins, RPC providers such as Infura and Alchemy, the dYdX exchange, and the Oasis wallet.
Many traditional technology platforms, such as website hosts, GitHub, Discord, web hosts of the project DAO community, etc., have also discontinued their provision of services for the Tornado Cash cryptocurrency.
Even the USDC that was stored in Tornado Cash’s wallet was frozen by Circle, which sparked controversy regarding the issue of centralization.
To reduce the possibility of users’ funds becoming frozen, the stablecoin initiative known as DAI being developed by Maker may decide to remove USDC from the list of collateral assets.
The situation became even more disastrous when Dutch authorities announced in a statement that a developer of Tornado Cash had been arrested on suspicion of engaging in activities related to money-laundering.