Crypto derivatives platform dYdX said that it incorrectly suspended and barred some users who had never directly interacted with Tornado mixer.
The derivatives platform suspended some accounts after the Office of Foreign Assets Control of the US Treasury Department added Tornado Cash to its list of Specially Designated Nationals (SDNs), according to a blog post published on Wednesday by dYdX.
Even though some accounts had never dealt with the cryptocurrency mixer, according to dYdX, its compliance provider reported numerous accounts that were allegedly connected to Tornado Cash, which the platform immediately terminated.
The platform said that it has employed compliance vendors to look for and flag accounts that might be connected to illegal activity, including accounts listed on various nations’ sanctions lists.
Many account holders who had never directly interacted with Tornado Cash were impacted by the sudden influx of flags. Often, these users are unaware of the source of the money that was transferred to them during various transactions prior to using our platform, but we are still required to uphold certain restrictions, said dYdX.
Banning the users, in their opinion, did not equate to seizing money because withdrawals would always be possible, according to dYdX. The platform, however, has the ability to put accounts in “close-only mode.”
Tornado Cash has been inaccessible on several cryptocurrency trading platforms since the U.S. Treasury added the contentious mixer to its sanctions list on August 8.
When a company or person is designated as an SDN, their assets are blocked, and “U.S. persons are typically prohibited from interacting with them.” This would apply to 44 USD Coin (USDC) and Ether (ETH) addresses linked to Tornado Cash.
However, actions taken against people connected to the cryptocurrency mixer go beyond centralized exchanges situated in the US. Roman Semenov, a co-founder of Tornado Cash, claimed his account has been suspended by the developer community GitHub. Alchemy and Infura.io, two Web3 development platforms, followed on Tuesday by throttling requests for remote procedure calls to the mixer.
Some detractors of the Treasury’s choice to include Tornado Cash on its list of SDNs contend that the cryptocurrency mixer is a “neutral tool” that anybody can use and not a platform with ulterior motives.
Lia Holland of the tech advocacy group Fight for the Future described the Treasury’s use of sanctions against bad actors like the North Korean hacking group Lazarus, which also impacted users with “legitimate reasons to seek anonymity in financial transactions,” as “clumsy” in a statement released on Tuesday.
Tornado.cash is code, and the Treasury just approved that code rather than identifying those who were encouraging criminal activity, according to Holland.
