Circle CEO Jeremy Allaire pledged more engagement to address privacy concerns that have dogged the stablecoin issuer after it froze $75,000 in USDC belonging to users of the sanctioned cryptocurrency mixing service Tornado Cash.
The U.S. Treasury Department sanctioned Tornado Cash on Monday, alleging the privacy tool laundered more than $7 billion worth of crypto assets since 2019. The measures mean that all U.S. citizens and entities are banned from using Tornado Cash.
Tornado Cash is an Ethereum-based tool used by crypto investors to hide their transactions. The sanctions ignored a commitment by the mixer in April to block addresses blacklisted by the U.S. Office of Foreign Assets Control (OFAC).
Circle freezes user funds amid criticism
Circle, issuers of the dollar-pegged USDC stablecoin, froze about 75,000 USDC in user funds with ties to Tornado Cash, in compliance with U.S. sanctions, according to data compiled by Dune Analytics.
“The systems we have in place to comply with applicable law and government regulations worked,” Circle CEO Jeremy Allaire later confirmed in a blog post.
“Circle complied with these sanctions and blocked the addresses on our platform, cutting off USDC access from Circle accounts to and from the Tornado Cash sanctioned addresses,” he added.
The move was met with swift criticism from privacy die-hards, convinced that centralized entities like Circle are an affront to the cryptocurrency ethos of privacy and autonomy.
“I think today is a good reminder that we must ‘always’ prioritize decentralization,” tweeted Eric Conner, founder of Ethereum educational platform EthHub.
“Deployed contracts can never be stopped because Ethereum is sufficiently decentralized but things like centralized stablecoins and traditional domains can be. We need full stack decentralization.”
Blockchain engineer David Mihal said the Tornado Cash and Circle fallout “reminds us why privacy and censorship-resistance is important.”
As a decentralized currency, bitcoin (BTC) is not vulnerable to the whims of governments and central banks. Or even of centralized corporate outfits.
Policy engagement
Circle did not admit wrongdoing in agreeing with the U.S. government sanctions on Tornado Cash, which affected the mixer’s Github organization account, personal accounts of Tornado Cash contributors, all of its USDC smarts contracts and others.
However, Allaire believes that “the regulatory intervention in this case crossed a major threshold in the history of the internet, and the history of open blockchain finance.”
“It raises extraordinary questions about privacy and security on the internet, and the future of public internet digital currency. We have noted the tension between privacy and security as a policy matter – yesterday, this stopped being an abstraction,” he said on Twitter.
In the blog post, Allaire committed to ramping up action on policy engagement to better protect user privacy in line with the foundational principles of crypto.
“While we complied with the Tornado Cash sanctions designation, we will also challenge the flaw as a tenant of our responsibility…” he said, adding:
“In the coming days, we intend to announce additional steps to garner broader industry support for developing policies that can advance the preservation of openness and privacy on blockchains and modernize the approach to mapping financial integrity to the technical realities of privacy preserving public internet protocols.”
Crypto regulation is usually themed around money laundering and funding of terrorism.
Exchanges and other crypto service providers have cautiously welcomed the governmental embrace, showing a break from crypto pioneers who maintained cynic detachment from authority.
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