Tornado Cash Ban Fallout Part Two
Sadly, in true cryptocurrency community fashion someone has weaponized this US Government ban and sent 0.1 Eth to 600 people via Tornado cash, as of this articles writing.
Although this was initially seen as a protest against the law, and interpreted as many as a way to demonstarte how poorly concieved the wording of the ban was and how dangerous it's strick interpretation could be things have changed.
The sending of small amounts of Ethereum to celebrities via Tornado Cash is no loner seen as a protest move to be applauded, it is now being seen as a way to attack people and cause financial harm. This attack is now being called Dusting.
I have previous reported on the effect of this ban on Justin Sun, a famous or infamous cryptocurrency figure. But now more news of potential economic harm is coming to light, as more details of what actually happens when you get sent funds via Tornado Cash.
Dusting attack on Justin Sun results in the freezing of 200 million dollars of his funds in Aave!
Background:
A tweet by Tron founder, Justin Sun, has spotlighted the issue as he claims to now be unable to interact with Aave. Sun tweeted that Aave has blocked his account after he received 0.1 ETH from a random account through Tornado Cash.
The text on the screenshot shared with the tweet reads, “This address is blocked on app.aave.com because it is associated with one or more blocked activities.” source
Further Information
A search of Sun’s banned wallet address “0x3ddfa8ec3052539b6c9549f12cea2c295cff5296” indicates that he has over $100M in Aave tokens. He holds $91 million aTUSD, $58 million aUSDC, and $19 million aDAI. These funds appear to be unrecoverable via the front-end UI of Aave at present.
source
Research on the the Ethereum blockchain blockchain explorer reveals this:
- This screen shot shows us a wallet which has a persons name, the name is Justin Sun:
- This Etherscan shot shows his wallet total over 256 million dollars in funds.
These next four screen shots show that specific funds which are deposited on the Aave website by this wallet address, and thus controlled by this wallet, unless access is frozen by the project.
- As you can see the total funds on the Aave website from this wallet are in excess of 200 million dollars US.
- If this is Mr. Justin Sun's wallet, as the name on the first screen shot implies Mr. Justin Sun is a victim of the Dust Attack made possibe by the US Treasury Ban, and the subsequent response by these so called decentralized finance providers.
Why should you care?
- This is the unjustifiable seizure of Mr Sun's personal property, as he has not been proven guilty of any crimes, and in fact has not been charged with any crimes.
- He may have never personally interacted with Tornado Cash, but because someone created an interaction between him and Tornado Cash by sending him a very small amount of Ether, his account on Aave containing more then 200 million dollars has been locked over an interaction involving about 200 dollars US worth of Ether.
- This is wrong, and for those of you who dislike or hate Mr. Sun you have to realize that an injustice to him could become an injustice for others, even you.
Can Justin Sun get his funds?
One source stated this:
However, as the error message shows on Sun’s tweet, it seems that only the application’s front end is being blocked. Users may be able to interact with the protocols via CLI or forking the project to create their front-end UI. This is beyond many users, but those with considerable funds should be able to access blocked assets via this method.
More Background on what is happening:
News on the effects of the US Treasury Departments Ban and Sanctioning Tornado cash and Smart Contract
Ethereum DeFi Apps are banning wallets and freezing accounts.
Several decentralized applications on the Ethereum network have implemented code changes to revoke access from “sanctioned” addresses. The currently identified protocols are Aave, Uniswap, Ren, Oasis, and balancer.
source
TRM Labs author of address screening tool
Apparently this software development company developed a software tool used to identify Russian cryptocurrency wallets during the sanctioning of Russian cryptocurrency wallets after the US Government sanctioned multiple persons in Russia.
This tool is now being used to ban wallets and freeze accounts on Ethereum based DeFi projects.
The “address screening” that has been put into place revolves around TRM Labs, a compliance company offering services to dApps via an API. A page on the TRM Labs website refers to the tool as applicable for “new Russia-related designations.” source
However, following the OFAC move to sanction all addresses related to Tornado Cash, it appears that users that have interacted with Tornado Cash are now also being labeled as “sanctioned” and thus banned from the platforms using TRM Labs’ API. source
New Trolling Tool called Dusting Attacks
It appears that a new tool for mean people, called frequently Trolls, is to send you a very small amount of Ethereum, referred to as dust. This is enough to trigger a ban and freeze of your accounts on Ethereum based defi projects.
The sanctions are not being placed on addresses related to Russia but on any users, including United States citizens, who have ever received funds from a Tornado Cash address. Given the recent dusting attack of high-profile addresses such as Brian Armstrong, Justin Sun, and several VC firms, it appears they have been blocked from Aave, Uniswap, and the other applications using TRM Labs
Can this problem get worse and involve more people? Yes!
Right now it isn’t clear exactly what criterion are used to determine a Tornado cash interaction.
It is believed that If a wallet receives funds directly from Tornado Cash, that is an interaction, and the account wallet address is forwarded to the US Treasury Department and the accounts are frozen on the Ethereum based DeFi Accounts.
However blockchain explorer researchers can also trace funds sent to an exchange and swapped for other tokens. The person participating in the swap can also be identified and their wallet address surmised. Now their wallet address could theoretically be forwarded to the US Treasury Department and their accounts frozen on these Ethereum based DeFi protocols.
This last issue is theoretical right now. But Ethereum developers and Ethereum aficionados are looking at this very carefully.
Last Words: if this continues decentralized finance onethereum is dead.
- These are suppposed to be decentralized finance applications on the ethereum blockchain.
- Ethereum is the home of decentralized finance and the proud community which often looks down on other communities like Binance for being centralized.
- I am sure I am not the only person shocked by what has happened here, and that this was not instigated by the US Treasury.
- These applications took the step to develop a policy utilizing a sanction tool which simply identifies addresses and used it in such a way that it harms individuals who are being forced to interact with Tornado Cash by third parties. - The developers or administrators of these decentralized applications are behaving in a highly centralized fashion.
- This is yet another example of the immaturoty of this financial space. We preach decentralization, but use centralized applications who harm us with centralized methods of control.
- If this happened on Binance every one of the Ethereum faithful would be outraged, as they should be. Where is that outrage now?