Navigating Sanctions in Blockchain

Show highlights:

• the legal meaning of the OFAC sanctions on Tornado Cash and why it is causing complications
• how legislation is built for the fiat world, and how in DeFi and crypto there’s no clarity 
• how miners have changed their behavior prior to the Merge
• whether a proof of work chain or a proof of stake chain would be more censorship resistant
• whether laws apply to validators in a PoS chain
• the ways in which the government could provide more clarification 
• the different entities involved in Proof of Stake
• the liabilities for each entity in PoS and what secondary liability is
• how the task of the bidder can be described as a mathematical optimization problem
• whether Lido is exposed to US regulations
• how long would it take for a large staker like Coinbase to stop being a validator
• how a user-activated soft fork works and the conditions in which a fork could happen
• whether social slashing is enforceable considering it is not in the protocol
• the likelihood of Ethereum becoming a permissioned system
• the role of Flashbots’ relay code and what it means for Ethereum’s censorship resistance
• how DeFi’s exposure to US-based institutions can affect the likelihood of the chain complying with sanctions
• whether DAI is just wrapped USDC
• how MakerDAO is trying to be more independent of USDC
• why US-based companies will choose a conservative path, considering the lack of guidance
• the importance of educating the regulators 
• how cash and crypto are the only remaining private payment methods 

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Andrew

Twitter: https://twitter.com/propelforward

Martin

Twitter: https://twitter.com/koeppelmann

Previous Coverage of the Tornado Cash Sanctions on Unchained:

• Is TRM Labs Blocking Addresses From DeFi Protocols? Ari Redbord Says No: https://unchainedpodcast.com/is-trm-labs-blocking-addresses-from-defi-protocols-ari-redbord-says-no-ep-387/
• Tornado Cash Sanctioned. Did the Government Overstep Its Bounds?: https://unchainedpodcast.com/tornado-cash-sanctioned-did-the-government-overstep-its-bounds-ep-384/
• The Chopping Block: Did OFAC Overstep by Sanctioning Tornado Cash?: https://unchainedpodcast.com/the-chopping-block-did-ofac-overstep-by-sanctioning-tornado-cash-ep-386/

Social Slashing and Censorship on ETH

Axios summary of the situation: https://www.axios.com/2022/08/23/how-transactions-might-be-censored-after-ethereum-changes-next-month

BitMex research on how the sanctions affect Ethereum: https://blog.bitmex.com/ofac-sanctions-ethereum-pos-some-technical-nuances/

Ethermine banning transactions: https://twitter.com/takenstheorem/status/1560690035955011585?s=20&t=59hWdhr8_O-hYA8uYnZJ8w

Nic Carter’s article: https://www.coindesk.com/layer2/2022/08/25/if-ethereum-starts-slashing-it-burns/

Eric Wall’s article on social slashing: https://ercwl.medium.com/the-case-for-social-slashing-59277ff4d9c7

CoinDesk article: https://www.coindesk.com/tech/2022/08/23/as-censorship-on-ethereum-begins-could-this-open-sourced-code-help-counter-it/?outputType=amp

Hetzner banning Ethereum users: https://twitter.com/koeppelmann/status/1563146729314467840?s=20&t=ubFhCQqrQyHKfflgMHEmJw

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