The entire crypto industry collectively continues to unravel the impact of US government sanctions on crypto mixer Tornado Cash. The move, which involved blacklisting wallet addresses using Tornado Cash, has rocked the DeFi world as projects struggle to resist or adapt to the new law of the land.
Decentralized derivatives exchange dYdX was one of the first projects to react to the news, blocking various crypto addresses that interacted with Tornado Cash. Popular lending protocol Away also appeared to act quickly after Justin Sun revealed that his wallet was blocked.
Although dYdX and Aave have held some back, it still begs the question: If a project can only flip a switch and ban a few users, how decentralized is it really?
and now, as DeFi As projects scramble to decide what to do, a new investigative firm has taken center stage: TRM Labs. Firms such as Elliptic and Chainalysis have emerged as the leading switch-flipping service to which most crypto projects remain compliant.
The company claims that it is “not engaged in blocking specific addresses.” Instead, TRM Labs says it only provides its risk data to its customers for “use in their compliance programs.”
It is like a signaling service called a . can be corrected by DeFi Project to raise a flag whenever an at-risk address interacts with the project’s webpage or frontend. Thus the decision to block or restrict an address still rests on the shoulders of these projects.
As TRM Labs put it: “Organizations using TRM configure their settings and risk thresholds to determine which addresses to block or freeze.”
In terms of what these risk parameters look like, the firm marking the restrictions has provided a convenient layout.
Service breaks down, for example, whether the address interacting with the project is listed directly on OFAC’s sanctions list (“proprietary risk”) or if it interacts indirectly with such address and to what extent.
The further down the list of addresses affected by a given platform, the more users are effectively banned.
TRM Labs explained that centralized exchanges, such as Binance or FTX, typically implement flagging services far down the risk ladder. DeFi projects. This is because these types of entities are generally more compliant with global AML standards.
The main thing here is that the decision to ban addresses is 100% at the discretion of the project.
And thus, DeFi Looking more and more like plain old fintech.
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