The Office of Foreign Assets Control (OFAC) establishes sanctions against Tornado Cash.
At the beginning of last August, the Tornado Cash protocol was in the spotlight. Indeed, the US Office of Foreign Assets Control blacklisted the protocol.
Thus, the American organization accused Tornado Cash of having facilitated the laundering of more than 7,000 million dollars. In response, OFAC decided to issue sanctions against the protocol and the entities that interact with it.
Soon, many US-based crypto services moved to censor the protocol. Later, this censorship was even extended to Ethereum blocks, with OFAC measures being applied by many block producers.
Are OFAC Sanctions Effective?
On January 9, Chainalysis, specialized in on-chain data analysis, published a study aimed at measuring the effectiveness of the sanctions imposed by OFAC.
As a first step, Chainalysis tried to make a history of sanctions. To do this, the company has collected data since 2018, the date of the first measurements issued by OFAC.
Therefore, it can be seen that the number of addresses and companies sanctioned has grown steadily since 2018. However, it is important to note that the actions remain relatively anecdotal, with only about ten entities sanctioned in 2022, for a total of about 350 addresses.
In 2022, the top three entities targeted by OFAC were:
Hydra, the dark web market;
Tornado Cash, the decentralized mixer; and
Garantex, the Russian decentralized exchange.
Chainalysis sought to determine the actual impact of these sanctions by analyzing on-chain activities related to the sanctioned entities after OFAC targeted them.
Based on the data analyzed, the sanctions against Hydra appear to have paid off. In fact, the cryptocurrency transfers linked to this platform crashed after the sanctions were implemented.
The Tornado Cash mixing protocol also registered a notable drop in activity after the application of sanctions by OFAC. Thus, the protocol registered a volume that oscillated between 5 and 10 million dollars before the application of the sanctions. Following these, the protocol saw its volume plummet so that it rarely exceeds $5 million.
Therefore, OFAC-imposed sanctions appear to have had a moderate impact on Tornado Cash certainly reducing volume, but much less significant than on the Hydra market.
Finally, the decentralized exchange platform Garantex was unfazed by the OFAC sanctions. In fact, it even registered an explosion in its volume after the announcements of the American organization.
Conclusion: A Half Victory for OFAC
As Chainalysis points out, OFAC’s reach remains limited and its sanctions do not always have the desired effect: ““This suggests that sanctions against decentralized services act more as a tool to discourage usage of the service rather than shut it down entirely.”
By Audy Castaneda
