Ethereum Mixer Tornado Cash to Earn Nearly $2 Billion by 2024 Despite Sanctions

In the first half of 2024, more than $1.9 billion was deposited into the Ethereum mixer Tornado Cash (TORN). Things slowed down in July, but the protocol only attracted $65.1 million worth of deposits, according to data provided by cryptocurrency analytics service Flipside.

Given Tornado Cash’s nature as a mixer, the Total Value Locked (TVL) metric used to gauge activity levels in the ecosystem is not very reliable. Total value locked refers to the value of assets locked in decentralized applications. As such, TVL is not typically used to measure activity in Tornado Cash. The expected use case is to deposit funds and then withdraw anonymized funds, rather than keeping them in the protocol for long periods of time, as is the case with most decentralized financial services.

Nonetheless, DeFiLlama data on Tornado Cash’s TVL shows significant growth, with the protocol starting from just under 160,000 ETH this year and now sitting at almost 168,600 ETH. In USD, this represents a growth from $374.4 million to its current value of $572.82 million when considering the growth in asset value.

What is a Tornado Cache?

Tornado Cash is a coin mixer created to protect the privacy of cryptocurrency users. Using zero-knowledge proof cryptography, the protocol anonymizes user deposits and allows withdrawals to be made to a new address that cannot be traced back to the previous address.

The Ethereum mixer has seen inflows from wallets associated with major hacks, including $3.3 million worth of Ethereum (ETH) sent to the mixer by the hacker behind the Poloniex hack in early May. Transactions related to the hack (some of which were reportedly linked to North Korea) led to the US Treasury Department imposing sanctions on Tornado Cash in early August 2022.

This was followed by a lengthy legal battle against the Tornado Cash developers, which was seen by many in the cryptocurrency community as a gross abuse of power. The case is still ongoing, and last week, a ruling was made that postponed the money laundering trial of Tornado Cash co-founder Roman Storm, despite opposition from prosecutors.

Paul Grewal, Coinbase’s chief legal officer, said in April that the U.S. Treasury was “making old law obsolete beyond its limits” by shifting responsibility for Tornado Cash misuse onto developers and TORN holders.

This poses a real problem for the Treasury, he said at the time, because open-source software code that cannot be changed is not property, and the Treasury has the authority to regulate only “property” that foreigners have an interest in.

Ethereum co-founder Vitalik Buterin said in late May that it was “really unfortunate” that Tornado Cash developer Alexey Pertsev was sentenced to 64 months in prison, but he continued to support privacy-focused crypto tools and encouraged people to build “next-generation” solutions.

“I think a lot of people think that just building software is a good thing to do,” he said during a fireside chat at DappCon in Berlin. “It’s a completely legitimate and legal way to fight for privacy.”

Edited by Stacy Elliott.