dYdX Reveals Banning User Accounts Linked to Tornado Cash

Cryptocurrency derivatives provider dYdX announced that it had restricted user accounts with a history of transactions with Tornado Cash. The exchange added that it is a compliant entity and thus moved against accounts violating United States law on illegal financial dealings.

dYdX Blocked Multiple User Accounts

According to a blog post titled “Tornado Outage” released by the exchange, it has a long history of using compliance vendors to vet and flag accounts on the dYdX platform. Accordingly, funds associated with criminal enterprises or money laundering sanctioned by the U.S. are barred. 

dYdX further added that it has recently observed a surge in activity on accounts flagged by its compliance provider. As a result, it blocked many such accounts because a significant part of the funds had interacted with Tornado Cash.

However, the numerous flag downs also affected accounts whose owners had no idea the source of funds sent to them. This means some of the affected accounts, before interacting with the dYdX platform, have received funds from Tornado Cash at one time or another. Nevertheless, the exchange pledged to maintain the restriction in compliance with the directive from the U.S. Treasury.

Meanwhile, the exchange noted that it had made adjustments to unblock some affected accounts. And it also reiterated its stance to continue upholding the mandate of tracking and flagging suspected accounts.

Compliance from regulators will see most crypto firms decline business with users with funds from Tornado Cash or its affiliate. The broader crypto industry is obliged to avoid doing business with any Tornado Cash-linked assets due to the recent sanctions from the Treasury.

Tornado Cash Link to Cybercrime

The United States Treasury recently sanctioned the digital currency mixer after reportedly laundering over $7 billion in digital assets since it launched in 2019. In addition, the U.S. Treasury also found the exchange guilty of coordinating the transfer of $455 million on behalf of the Lazarus Group, a North Korean state-backed hacking entity.

Recently, Tornado Cash was involved in the cash movement from a heist targeted at U.S. crypto firm, Nomad.

Moreover, the sanctions prohibit any U.S. citizen, entity, or organization under the jurisdiction of the United States from interacting with Tornado Cash.

The role of a virtual currency mixer is to collect multiple transactions, mix them, and send them to their various destinations. This makes it harder for authorities to trace the origin of the money and where the exchange sent it.

However, a senior Treasury official revealed that Tornado Cash made some effort to comply with the regulations, but further investigation revealed that notorious hacking groups were able to use the platform. The United States government sanctioned 44 digital asset accounts linked to Tornado Cash.

According to an insider report, the exchange has long been under scrutiny by U.S. authorities. It has failed to comply with its obligations outlined by the Treasury regarding the custody and transfer of funds for criminal activities.

Hopefully, the sanctions will go a long way towards restoring order to the privately controlled crypto industry.