DYdX Attempts To Spare Users Unfairly Targeted by Tornado Cash Sanctions

The Office of Foreign Asset Control sanctioned Tornado Cash and 45 related Ethereum wallet addresses Monday, prompting exchanges and issuers to begrudgingly comply with laws

article-image

Source: DALL·E

share

key takeaways

  • DEX dYdX said many accounts have been blocked due to associations with Tornado Cash, but it hope to spare those unfairly targeted
  • The news comes after Circle and its USDC launch partner, Coinbase, blocked the movement of USDC to sanctioned addresses

In accordance with federal sanctions regulations, decentralized crypto exchange dYdX said it has begun blocking users that have interacted with Tornado Cash, but the dYdX team is attempting to protect unfairly targeted traders. 

For example, if a trader purchases a bitcoin that previously had been funneled through Tornado Cash by another party, that dYdX customer could have been — unfairly, in the exchange’s eyes — blacklisted without warning. That would have been true even if the trader had never personally used the mixer.

The Office of Foreign Asset Control added Tornado Cash and 45 related Ethereum wallet addresses to the Specially Designated Nationals (SDN) list Monday, alleging North Korea-backed hacker collective Lazarus Group used the service to launder more than $455 million in stolen crypto.

“We were recently made aware of an issue related to Tornado that was causing many wallet addresses to be blocked from accessing our exchange,” dYdX tweeted. “We have rectified this.” 

The exchange uses “compliance vendors to scan and flag accounts” with funds associated with illicit activity, including Tornado Cash, dYdX wrote in a blog post.

“Many accounts were blocked because a certain portion of the wallet’s funds (in many cases, even immaterial amounts) were associated at some time with Tornado Cash,” dYdX wrote. “This…affected many account holders that never directly engaged with Tornado Cash, and often such users do not realize the origin of the funds transferred to them during various transactions prior to interacting with our platform, but we must nevertheless maintain certain restrictions.”

DYdX has since amended the list of blocked users, opting to unban an undisclosed number. The team urged users who feel they have been unfairly targeted to contact the exchange. 

The development comes after Circle and its USDC launch partner, Coinbase, blocked the flow of USDC to sanctioned addresses. It’s a move Circle co-founder Jeremy Allair said he expects other companies will follow, given the 30-year prison sentence that can come with not abiding by sanctions laws.

The situation “raises extraordinary questions about privacy and security on the internet, and the future of public internet digital currency,” Allair tweeted

DYdX, built on Ethereum, said in June it would move to a standalone blockchain based on the Cosmos SDK and Tendermint proof-of-stake consensus. The new version, expected to launch by year-end, would promote greater decentralization and scalability, the team said. 

A spokesperson for the company declined to comment.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Decoding crypto and the markets. Daily, with Byron Gilliam.

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Brooklyn, NY

SUN - MON, JUN. 22 - 23, 2025

Blockworks and Cracked Labs are teaming up for the third installment of the Permissionless Hackathon, happening June 22–23, 2025 in Brooklyn, NY. This is a 36-hour IRL builder sprint where developers, designers, and creatives ship real projects solving real problems across […]

recent research

Research Report Templates (10).png

Research

Kamino has evolved into a full-stack asset scaling suite with V2: unlocking new markets, improving capital efficiency, and catering to various risk profiles. We believe it is best positioned to become the credit backbone of Solana as the ecosystem matures. Simply put, KMNO remains our highest-conviction bet in the Solana ecosystem. This report lays out our thesis.

article-image

When compliance meets composability — creating pre-trade rules on Uniswap

article-image

You can’t put a price on freedom, but this comes close

article-image

Introducing the Token Transparency Framework, a publicly available token disclosure standard

article-image

Even in today’s fully fiat system, the question of who ultimately stands behind the dollar still matters

article-image

The GENIUS Act passed the Senate in a 68-30 vote Tuesday evening

article-image

Acquisitions could help the memecoin platform own more of the trading stack