Tornado Cash

Tornado Cash is an open-source smart-contract mixer on Ethereum (and several EVM-compatible networks) that severed the link between sender and recipient addresses. A user deposited a fixed amount of ETH or an ERC-20 token into a shared pool, then withdrew it to a different address by submitting a zero-knowledge proof of ownership without revealing which specific deposit was theirs. On 8 August 2022, OFAC added the Tornado Cash smart-contract addresses to the SDN list, turning the case into the foundational precedent for sanctioning software as such.

How it worked

• Fixed-denomination pools. For example 0.1 ETH, 1 ETH, 10 ETH, 100 ETH, with separate pools for DAI, USDC, USDT and others.
• zk-SNARK proofs. On deposit the user kept a local secret (a “note”). On withdrawal they built a zk-proof that they held a secret matching one of the deposits, without revealing which one.
• Relayer service. To withdraw to an empty address without a “where did the gas come from” trail, users could route through third-party relayers, who paid the fee in exchange for a share of the withdrawn amount — an early precursor to sponsor-relayer designs.

The 2022 sanction precedent

On 8 August 2022 OFAC for the first time placed not individuals or organisations on the SDN list, but smart contracts themselves. Consequences:

• immediate refusal by major crypto-infrastructure firms (Circle, Infura, Alchemy and others) to service the addresses;
• arrest and conviction of developer Alexey Pertsev in the Netherlands in 2024;
• charges brought against co-developer Roman Storm in the US;
• removal of the Tornado Cash GitHub repository (later partly restored).

Court challenge: Van Loon v. Treasury (2023–2025)

A group of Tornado Cash users and the Coin Center think-tank sued the Treasury. Key milestones:

• 2023: the Texas district court rules against the plaintiffs.
• November 2024: the US Fifth Circuit Court of Appeals reverses the ruling, holding that “immutable smart contracts are not property” within the meaning of IEEPA and that the Treasury exceeded its authority by sanctioning the code itself.
• January–March 2025: OFAC removes the Tornado Cash smart contracts from the SDN list, retaining only specific wallets and individuals tied to the operation.

The decision has broader implications for any attempt to sanction decentralized software, including potential future cases on TON and other networks.

Relevance to TON

There is no direct equivalent of Tornado Cash on TON, but discussions of private transfers in TON (ZK-Pass, experimental mixer contracts in test networks) explicitly reference this case. Any design that replicates “pool plus zk-proof plus relayer” raises immediate AML questions and potential exposure to sanctions programmes.

Practical takeaways

• Receiving funds that passed through Tornado Cash remains a high compliance risk at exchanges and custodians.
• The legal status of the software itself (post-Van Loon) is ambiguous; users in the US still face risk when interacting with known contracts.
• This is not legal advice; the specific risk depends on jurisdiction and the user’s role in the transaction.