Cryptocurrency mixer industry gets apprehensive after US sanction

The dream of decentralized finance faces turmoil. By 2022, total funds deposited in the sector had shrunk to about $61 billion from more than $170 billion at the start of the year, according to Defi Llama data.

Now, the United States Treasury has acted on one of the biggest “mixers” in the industry, tools that group and scramble cryptocurrencies from thousands of addresses to increase anonymity, saying it was used by hackers to launder money.

“The move forced many DeFi projects to lock down money from wallets linked to Tornado and reduced their ability to operate,” said Katie Talati, director of research at digital asset manager Arca.

Average usage of these services over a 30-day period hit an all-time high of $51.8 million at the end of April, nearly double the year-ago level, according to a study by Chainalysis, before falling with the cryptocurrency market. .

Tornado Cash did not respond to a request for comment.

While DeFi companies may face difficult decisions about withdrawing mixers, some analysts see a potential upside for the market if the US moves lead traditional institutional investors into the fray.

“Larger institutions may see sanctions as a step toward legitimacy, potentially giving them more comfort in engaging or investing in Ethereum and other digital assets,” Grayscale analysts wrote.

“Illicit” addresses identified by data firm Chainalysis accounted for 23% of funds sent to mixers in 2022, up from 12% in 2021.

As for Tornado Cash specifically, analytics firm Elliptic reported that at least $1.54 billion in criminal money was laundered through the platform.