Is This the End of DeFi? Why the US Government Is Going After Tornado Cash - Ep. 536
Aug 25, 2023
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Amanda Tuminelli, Chief Legal Officer at the DeFi Education Fund, dives into the controversial indictment of Tornado Cash co-founders. She clarifies the government's position on money laundering allegations and challenges the understanding of blockchain by regulators. Tuminelli discusses potential implications of these charges for all software developers and whether they could signal the end of DeFi in the U.S. The conversation raises urgent questions about KYC processes and the essential balance between privacy rights and legal scrutiny in the crypto landscape.
The US government indicted Tornado Cash developers for allegedly facilitating money laundering, raising questions about the responsibility of software developers for the criminal use of their software.
The indictment of Tornado Cash founders based on their software development has implications for all software developers, potentially impacting innovation and creating a chilling effect on development.
Deep dives
Indictment of Tornado Cash Founders
The US government recently indicted three co-founders of Tornado Cash for conspiracy charges. They are accused of creating software that facilitated various crimes, including money laundering. The government alleges that over $1 billion was laundered using Tornado Cash. However, there is a distinction between the developers and the software itself, and the indictment raises questions about whether facilitation is the correct term. The charges are based on the concealment of potential proceeds of a crime rather than the direct facilitation of the crimes.
Implications for Software Developers
The indictment of Tornado Cash founders based on their software development has raised concerns among software developers. The novel legal theory of the money transmitter business is being used in this case, which creates potential implications for all software developers. If developers can be held responsible for the actions of those who use their software, it could have a chilling effect on innovation. The defense lawyers argue that simply developing software should not make someone liable for how others use it.
Privacy and Concealment of Transactions
The indictment focuses on the alleged concealment of proceeds of crimes through anonymized private transactions using Tornado Cash. There is a distinction between wanting privacy in transactions and engaging in illicit activities. The privacy of transactions, whether in crypto or in cash, is not inherently illegal. The indictment raises questions about the government's stance on privacy and encryption that may have implications for the broader crypto and privacy communities.
Future of DeFi and Regulation
While the indictment raises concerns, it may not mean the end of DeFi. The charges specifically address the operation of a financial institution that would fall under the Bank Secrecy Act, rather than targeting all front-ends or software development. The case highlights the importance of clear regulations and guidance for DeFi projects to ensure compliance. However, the future of DeFi may also depend on how regulations evolve and whether a balance can be struck between innovation and regulatory oversight.
On Wednesday, the U.S. Government indicted Tornado Cash developers Roman Storm and Roman Semenov for three counts of conspiracy involving a staggeringly large number: $1 billion in criminal proceeds. The U.S. Department of Justice attached North Korean hackers to a large portion of this sum, alleging that Tornado’s privacy tech enabled nefarious deeds. Amanda Tuminelli, chief legal officer of the DeFi Education Fund, joins the show to assess whether the U.S. Government got it right or is merely misguided in its understanding of how blockchain technology works. Should Tornado Cash devs be held to account for the criminal use of their software?