The WBTC and Sanctions on Tornado Cash continue to remain in highlight. The US Treasury Department recently announced its decision to sanction Tornado Cash and all linked wallet addresses. They emphasized that the service has aided in laundering over $7 billion in cryptocurrency since its inception in 2019.

The US-based entities and individuals have been strongly advised not to use or interact with Tornado Cash’s smart contracts. Failure to cooperate with the Office of Foreign Asset Control (a branch of the US Treasury) could result in a 30-year prison sentence.

North Korean Hackers Among Tornado Cash’s Top Clients

Tornado Cash, like any Virtual Private Network (VPN), was designed to protect its users’ anonymity by scrambling any transactional data into an unreadable format. Transactions on the Ethereum blockchain and its subsidiary, EVM networks, could thus be carried out discreetly.

Although the service’s primary goal was to facilitate on-chain privacy, the software’s indiscriminate encryption of all transactions makes it popular with criminals looking to launder funds covertly.

Officials reported that the Ronin attackers, who were allegedly aided in their hack of Axie Infinity’s Ronin Network by the North Korean government, were able to securely transfer the $600 million in stolen funds through the service – $10 million at a time.

According to Ari Redbord, the head of legal and government affairs at the crypto regulatory startup TRM Labs, an estimated billion dollars in North Korean-related laundering schemes have been transferred through Tornado Cash.

WBTC and Sanctions: Regulatory Scrutiny Influences DeFi’s Major Assets

Other significant DeFi assets have already reacted to the sanctions. For example, the issuer – Circle – has banned over 75,000 USDC in possession of Tornado users. Tether’s USDT may also have to blacklist certain sanctioned Tornado addresses.

In response to recent OFAC sanctions, BitGo, like its competitors, may freeze any wBTC assets transferred via Tornado Cash. BitGo is a digital asset trust and security company based in New York. Because the entity is based in the United States, it is heavily regulated by relevant authorities.

What is Wrapped BTC?

Wrapped BTC allows users to transfer the value of BTC (Bitcoin’s native asset) from the Bitcoin blockchain network to the Ethereum blockchain network, allowing them to interact with the Ethereum ecosystem.

The issuance of wBTC is managed by a Decentralized Autonomous Organization (DAO). Its main function is to add or remove merchants and custodians. Merchants can start a mint by sending bitcoin to BitGo (wrapped BTC’s sole custodian) and will be compensated with wBTC in return.

The Future of DeFi is Uncertain

The sanctions imposed by OFAC highlight the ongoing battles between the US government and the cryptocurrency industry.

Such a decision can potentially throw regulated DeFi sectors into the mix unless major industry participants prioritize and further the efforts of financial decentralization growth.

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