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Over the first six months of 2024, more than $1.9 billion was deposited into Ethereum mixer Tornado Cash (TORN). Although things slowed down in July, the protocol apparently only attracted $65.1 million in deposits, according to data provided by cryptographic analysis service Flipside.
Given the nature of Tornado Cash as a mixer, the Total Value Locked (TVL) metric used to gauge the level of activity in an ecosystem is not as reliable. Total Value Locked refers to the value of assets that have been deposited into a decentralized application. This is why TVL is not typically used to measure activity on Tornado Cash. The expected use case is to deposit funds and then withdraw anonymized funds, rather than keeping them in the protocol for a long period of time as with most decentralized financial services.
However, DeFiLlama’s data for Tornado Cash’s TVL shows considerable growth, with the protocol starting the year at less than 160,000 ETH and currently sitting at nearly 168,600 ETH. In USD terms, this is a growth of $374.4 million to the current value of $572.82 million, factoring in asset value growth.
What is Tornado Cash?
Tornado Cash is a coin mixer which was created to preserve the privacy of cryptocurrency users. Using zero-knowledge cryptography, the protocol anonymizes user deposits and allows them to be withdrawn to a new address that cannot be traced back to the old one.
Ethereum mixer records entries from wallets associated with major hacks, including the hacker behind the Poloniex hack send $3.3 million worth of Ethereum (ETH) to the mixer in early May. Due to transactions linked to hacks, some allegedly linked to North Korea, the U.S. Treasury Department sanctioned Tornado Cash early August 2022.
This was followed by lengthy legal proceedings against the Tornado Cash developers, which were seen as a major reputational blow by much of the crypto community. These lawsuits are still ongoing, with a ruling issued last week delay money laundering trial of Tornado Cash co-founder Roman Storm, despite objections from the prosecution.
Paul Grewal, Coinbase’s Chief Legal Officer said in April that the US Treasury is “bending old laws beyond their breaking point” by placing responsibility for the misuse of Tornado Cash on TORN developers and holders.
Immutable, open-source software code is not property, which creates a real problem for Treasury because it is allowed to regulate only “property” in which a foreign national has an interest, he said at the time.
Co-founder of Ethereum Vitalik Buterin said at the end of May that Tornado Cash developer Alexey Pertsev is sentenced to 64 months in prison was “really unhappy” and continued to support privacy-focused cryptography tools, encouraging people to develop “next-generation” solutions.
“I think a lot of people assume that […] that just creating software is a good thing,” he said at a Fireside chat at DappCon in Berlin“and it is a completely legal and legitimate way to fight for privacy.”
Edited by Stacy Elliott.
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