DeFi: US Treasury's ban of crypto-mixer Tornado Cash is overturned in court
Decentralized finance has reason to cheer, as does North Korea
GM Fintech Futurists,
Today we highlight the following:
DIGITAL ASSETS: Court Reverses U.S. Sanctions on Tornado Cash, Opening Door for Decentralised Crypto Innovation
CURATED UPDATES: Financial Institutions and Adoption; DeFi and Digital Assets; Blockchain Protocols; NFTs, DAOs and the Metaverse
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DIGITAL ASSETS: Court Reverses U.S. Sanctions on Tornado Cash, Opening Door for Decentralised Crypto Innovation
The U.S. Fifth Circuit Court of Appeals has overturned the Treasury Department’s sanctions against Tornado Cash, a decentralised cryptocurrency mixing service accused of facilitating money laundering to the tune of billions. People use mixers by adding their assets into a blind pool, from which the assets are later withdrawn while hiding their source of acquisition. OFAC attempted to outlaw the use of mixers, with Tornado Cash in particular, because the software was used for money laundering and enemy nation-state operations.
The court ruled that the Treasury’s Office of Foreign Assets Control (OFAC) overstepped its authority by sanctioning Tornado Cash’s self-executing smart contracts. These contracts, which operate autonomously without centralised control, were deemed not to constitute "property" under the International Emergency Economic Powers Act (IEEPA). This is because the underlying code cannot be owned. The court also noted that over 1,000 participants came together for a “trusted setup ceremony”, removing the ability for the code to be updated or controlled.
This development is significant as it generally enables smart contracts to be developed and released without repercussions for the creator. But there are two exceptions: (1) if fees are taken by the creator or (2) if the creator provides a service. While no fees are taken by Tornado Cash the court may still argue that Tornado Cash’s founders enabled the service in other ways through the front-end and any marketing efforts.
Co-founder Alexey Pertsev was sentenced to more than five years in prison in the Netherlands earlier this year on money laundering charges. In the U.S., other co-founders face similar charges, with trials pending and investigations ongoing.
The market reacted strongly to the news. Tornado Cash’s token, TORN, saw a surge of over 380% in value before stabilizing.
The court’s decision does not eliminate regulatory scrutiny of Tornado Cash or similar platforms but signals the need for a more nuanced approach to addressing the misuse of decentralized technologies. The judges noted that while autonomous software poses challenges, the power to regulate such innovations lies with lawmakers, not executive agencies acting under statutes that are not fit for purpose.
While rife with caveats, we see this as a big step forward for providing legal clarity and validation that an open and autonomous financial system can be built that incorporates the principles of decentralization and privacy. It is also clear that there is increased scrutiny of developer responsibilities and heightened responsibility for users — if you’re enabling illicit activity (e.g., money laundering to North Korea) or participating in it you will be liable.
The second half of 2024 has been big for crypto court cases. This month the operator of Helix, a cryptocurrency mixer, was sentenced to three years in prison for processing over $400MM in BTC transactions between 2014-17. In September the UK High Court recognised USDT as property in a case involving laundered crypto through mixers, clarifying the status of stablecoins and determining how they will be treated in future legal proceedings.
These cases establish a precedent for how regulators might address decentralised technologies going forward. It also amplifies calls for legislative clarity, with industry stakeholders urging policymakers to develop modern frameworks that foster innovation while combating illegal activity. We recently talked with Coinbase on this topic, and you can find the conversation below.
The clear direction of travel is that the US is about to get a lot more loose with its digital assets.
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Long Take: Why Robinhood spent $300MM on TradePMR, a $40B RIA custodian
We explore the evolution of Fintech, from its pioneering days to its current mature stage.
Robinhood’s $300 million acquisition of Trade PMR, a custodian with $40 billion in assets under custody, highlights a shift in focus from retail innovation to scaling and infrastructure dominance. This deal positions Robinhood to target a $10 trillion market in RIA custody by addressing operational complexities and leveraging proprietary software for growth. The transition from "Commandos" to "Infantry" in the Fintech lifecycle underscores the industry's maturity, as firms like Robinhood and Revolut expand into traditional services like custody, banking, and mortgages.
Curated Updates
Here are the rest of the updates hitting our radar.
Financial Institutions and Adoption
⭐ Trump Nominates Pro-Crypto Hedge Fund Manager Scott Bessent as Treasury Secretary - Decrypt
MARA Holdings Upsizes Convertible Notes Offering by $150M Amid Overwhelming Investor Demand - CoinDesk
BlackRock receives license to operate in Abu Dhabi - CoinTelegraph
Crypto "neobank": Deblock raises €16 million - The Big Whale
Alluvial Raises Total Funding to $22.5M to Meet Institutional Demand and Expand Support For Liquid Collective - Alluvial Finance
Ethereum ETFs See Record $333M Inflows, Outpacing Bitcoin Funds as Catch-Up Trade Gains Momentum - Coindesk
DeFi and Digital Assets
⭐ Kernel Secures Binance Labs Funding to Redefine Restaking on BNB Chain - CryptoSlate
New York regulator set to approve Ripple’s RLUSD stablecoin: Report - CoinTelegraph
Rise Secures $6.3M in Series A to Accelerate Hybrid Payroll and Payment Infrastructure - Medium
Zerion Raises $12.3M to Facilitate Interoperable Web3 Identity - Coindesk
Blockchain Protocols
⭐ Crypto Staking Goes Live on Starknet in First for Top Ethereum L2 Blockchains - CoinDesk
Layer 1 blockchain developer Pharos raises $8 million in seed funding - The Block
Hyperliquid token exceeds $5 billion FDV following airdrop and more - The Block
Avalanche Blockchain's Largest-Ever Upgrade Goes Live on Testnet - CoinDesk
NFTs, DAOs and the Metaverse
⭐ Monkey Tilt raises $30 million in push to make online gambling more social - Fortune
Y – The New Digital Identity Network - BNC.
NFTs hit $562M in monthly sales volumes, recording six-month high - CoinTelegraph
‘Attack on Titan’ Survival Game Launches in ‘The Sandbox’ - Decrypt
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