Overall inflows to the Tornado Cash crypto mixer fell 68% in the 30 days following the platform’s inclusion on the U.S. Treasury Department’s sanctions lists. However, attackers continue to actively use the crypto mixer.
Chainalysis analysts, as part of a global study of sanctions’ impact on crypto crime, revealed that restrictions imposed by the Office of Foreign Assets Control (OFAC) on using Tornado Cash’s smart contracts didn’t seem as powerful as the regulator had hoped.
According to Chainalysis, a month after sanctions were imposed on Tornado Cash, fund inflows to the platform actually fell by 68%. The daily inflow of funds to the crypto mixer dropped by more than 80%. Thus, it reached $25 million before the sanctions and went below $5 million per day afterward.
However, further analysis of fund flows through Tornado Cash showed that at least 34% of all money coming into the crypto mixer remained linked to illegal activities. Moreover, Chainalysis analysts claim that 99.7% of them are directly related to cryptojacking and cryptocurrency fraud.
For example, CertiK researchers revealed that hackers who hacked the Nomad cross-chain bridge in August 2022 laundered at least 1,200 ETH (~$1.57 million) exactly via Tornado Cash. It happened after the crypto mixer was included in the OFAC’s sanctions lists, so the prospect of being sanctioned by the U.S. government didn’t stop the scammers.
Recall that the restrictions against Tornado Cash provoked a backlash from the cryptocurrency community, which accused the regulator of overstepping its authority. But such sanctions also put global pressure on the crypto industry. Therefore, a month after the restrictions were imposed, the U.S. Department of the Treasury allowed citizens to interact with the crypto mixer code. Yet, it was merely for familiarization purposes, forbidding its actual use.
The report by Chainalysis underlines that the regulator can’t actually ban interaction with the crypto mixer’s smart contracts, as Tornado Cash is a decentralized app. The OFAC can only impede attackers’ access to the mixer. “Sanctions against decentralized services act more as a tool to disincentivize the service’s use rather than cutting off usage completely,” the analysts summarize.
In 2022, the crypto market lost a total of $3.9 billion due to hacking and fraud, over 95.6% of which was stolen by hackers.
