Federal Court Blocks U.S. Treasury from Sanctioning Tornado Cash

The ruling significantly affects the legal framework for regulating crypto privacy protocols like Tornado Cash and boosts market confidence in decentralized finance.

The U.S. Treasury initially imposed sanctions on Tornado Cash to prevent misuse, but a federal appeals court found these actions exceeded legal scope. Judge Don Willett emphasized the IEEPA’s limitation in targeting immutable smart contracts. Fifth Circuit Court ruling on important legal case available online

The court’s decision is significant as it prohibits the Treasury from treating immutable smart contracts as sanctionable. In response, TORN’s price surged by 8%, reflecting market optimism. Coinbase, supporting the plaintiffs, praised the outcome, highlighting regulatory boundaries.

“OFAC is now legally prohibited from reinstating the original sanction.” — Paul Grewal, Chief Legal Officer, Coinbase.

The blocking of sanctions indicates court-recognized limits on targeting decentralized technologies without proper legal framework. It underscores the importance of distinguishing between technology misuse and criminal activity.

Financial markets reacted promptly, showing confidence in judicial protection for privacy-centric crypto protocols. This ruling may influence future regulatory approaches, highlighting the need for carefully crafted legal measures.

Experts suggest the decision could set a precedent for defending open-source DeFi protocols against blanket regulatory actions. Future enforcement may require more nuanced strategies to balance innovation and criminal prevention. Privacy advocates celebrate the strengthened legal protection for privacy tools on Ethereum. Paul Grewal shares insights on current legal issues via Twitter.