The U.S. Treasury Department has officially lifted sanctions imposed on Tornado Cash, a decentralized cryptocurrency mixer, marking a significant reversal in federal policy toward blockchain privacy tools. This move follows a legal ruling that found the original ban to be an overextension of government authority.

Why Was Tornado Cash Sanctioned?

In August 2022, the Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, alleging it was used to launder over $7 billion in virtual assets, including $455 million linked to North Korea's Lazarus Group. The ban was part of a broader crackdown on crypto services seen as enabling illicit finance.

The sanctions froze Tornado Cash’s assets and criminalized interactions with its smart contracts, prompting backlash from developers, privacy advocates, and crypto firms like Coinbase. Plaintiffs argued that the open-source nature of Tornado Cash did not justify labeling it as a "person" subject to sanctions.

In late 2024, a U.S. federal appeals court sided with the plaintiffs, ruling that the Treasury had exceeded its statutory authority by sanctioning immutable smart contracts rather than identifiable entities.

Policy Shift: U.S. Eases Crypto Stance Amid Legal and Market Pressures

The lifting of sanctions reflects a broader recalibration of U.S. crypto policy. In recent months, the Treasury and other agencies have signaled a willingness to differentiate between decentralized tools and bad actors. While the government maintains its commitment to fighting money laundering and cybercrime, officials now emphasize the importance of legal clarity and technological neutrality.

In parallel, the U.S. has released new guidelines on decentralized finance (DeFi), stablecoins, and self-custody wallets, and has initiated public consultations with industry stakeholders. The Securities and Exchange Commission (SEC) has also softened its tone, with recent court losses prompting regulatory agencies to refine their enforcement strategies.

Looking Ahead: A Turning Point for Crypto Regulation

Tornado Cash's reinstatement underscores the challenges of regulating decentralized technologies in a legal system designed for traditional entities. While privacy tools like mixers remain controversial, the government's evolving stance may pave the way for more nuanced crypto oversight — balancing innovation, privacy, and security.

As regulatory frameworks catch up with blockchain’s complexity, the Tornado Cash case could shape the future of crypto policy, both in the U.S. and globally.