Casey Wagner

Katherine Ross

David Canellis

<h2 class="wp-block-heading">Old tricks in DOJ’s new KuCoin fight</h2>



The Department of Justice and Commodity Futures Trading Commission announced back-to-back lawsuits against Seychelles-based KuCoin Tuesday.&nbsp;



In its criminal suit, the DOJ, among other things, <a href="https://blockworks.co/news/doj-alleged-kucoin-violation-aml-laws">alleges the crypto exchange violated anti-money laundering laws</a>. The DOJ also hit KuCoin founders Chun Gan and Ke Tang with conspiracy charges.&nbsp;



The CFTC, in its separate civil suit, says the exchange operated an unregistered futures and swaps operation.&nbsp;



The DOJ brought the case under the Bank Secrecy Act (BSA), which requires financial institutions — even those not formally based in the US — to keep records and file reports associated with know-your-customer and anti-money laundering efforts.&nbsp;



By skirting KYC and AML policies, the DOJ alleged, <a href="https://blockworks.co/tag/kucoin">KuCoin</a> was able to transmit more than $4 billion of “suspicious and criminal funds” and received $5 billion from operating “in the shadows of the financial markets.”



The language in the unsealed KuCoin indictment is very similar to wording US officials used when discussing Binance, which <a href="https://blockworks.co/news/binance-changpeng-zhao-deal-unpacked">settled US criminal charges in a $4.3 billion deal last November</a> for —&nbsp;you guessed it —&nbsp;alleged BSA violations.&nbsp;



Binance’s “willful failures allowed money to flow to terrorists, cybercriminals and child abusers,” Treasury Secretary Janet Yellen said in November.&nbsp;



While invoking the BSA in charging crypto companies isn’t a new trend, it could become much more common if a bipartisan group of US senators gets their way.&nbsp;



Sen. <a href="https://blockworks.co/tag/elizabeth-warren">Elizabeth Warren</a>, who has likened crypto markets to the “Wild West” and long advocated for legislation that treats crypto companies the same as the traditional financial sector, wants to expand the BSA to apply to nearly all industry participants, including wallet providers and miners.&nbsp;



Read more: <a href="https://blockworks.co/news/legislation-crypto-greatest-enemy">Petty legislation is crypto’s greatest enemy</a>



The Digital Asset Anti-Money Laundering Act, co-sponsored by Warren and Republican Sen. Roger Marshall, would classify some crypto businesses and money services businesses, subjecting them to more anti-money laundering statutes like the BSA. The bill, if passed, would prohibit financial institutions from using or engaging with transactions that have used “anonymity-enhancing technologies” like mixing services and privacy coins.&nbsp;



Critics say the legislation goes too far and places impractical and at times impossible <a href="https://blockworks.co/news/lawmakers-harming-crypto-industry">burdens on industry players</a>, especially miners and validators.&nbsp;



Regardless of whether the bill makes it to the floor — and, let’s face it, it doesn’t stand a chance in an election year — the <a href="https://blockworks.co/tag/doj">DOJ</a> still has a strong case for charging KuCoin with BSA violations, especially with precedent on its side.&nbsp;



The CFTC’s civil suit brings up some interesting points, too, including the naming of ether and litecoin as commodities, which Crypto Twitter absolutely loved.&nbsp;



Calm down, though — it’s still a massive lawsuit at one of the world’s more notable exchanges.



I wonder if the SEC is feeling left out. It’s not too late though; keep an eye on the wires today as we might see a third lawsuit. Or maybe there’s already a settlement in the works. 



— Casey Wagner



<h2 class="wp-block-heading">Data Center</h2>



<ul class="wp-block-list">
<li>Zero-knowledge layer 2 Scroll is placing higher on ETH burn leaderboards, now fourth behind Uniswap, ETH transfers and Tether with 558.76 ETH ($2 million) over the past week.</li>



<li>Solana has kept ahead of Arbitrum for total value locked for most of this month — now easily the fourth-largest DeFi ecosystem with $4.6 billion TVL.</li>



<li>Bitcoin and Solana NFT <a href="https://www.cryptoslam.io/blockchains">volumes</a> are down 42% and 27% this week. Ethereum weekly volumes have meanwhile gained 4%, now $98 billion.</li>



<li>BTC remains in the $70,000 range and ETH is holding on to $3,500 despite some minor slippage on the KuCoin lawsuit news.</li>



<li>COIN shares, on the other hand, appeared to not take news of another exchange lawsuit well, closing about 5% lower Tuesday.</li>
</ul>



<h2 class="wp-block-heading">Twisters hit Tornado Cash trial&nbsp;</h2>



After just two days, there may be more stormy skies ahead for Alexey Pertsev’s trial, according to people in attendance. 



<a href="https://blockworks.co/tag/ethereum">Ethereum</a> developer Ameen Soleimani <a href="https://twitter.com/ameensol/status/1772655426171023564">accused</a> the judges of being “willfully ignorant” when it comes to some of the topics being discussed in court.&nbsp;



Soleimani noted that, during the second day of the trial, it felt like the judges were trying to “trap” Pertsev.



At one point, Pertsev was <a href="https://twitter.com/ameensol/status/1772679594212020712">questioned</a> about his use of the term “lol” when he found out about <a href="https://blockworks.co/news/the-ronin-hacker-made-off-with-625m-of-crypto-but-cashing-out-isnt-so-easy">the $600 million Axie Infinity hack</a>. Pertsev, in response to finding out about it, reportedly tacked on “‘lol’ at the end of a question.”



“Did you find this funny?” the judges asked.&nbsp;



In a US court system, Pertsev would have faced a jury as his lawyers and the prosecutors face off. The Dutch court system operates differently, however, with Pertsev’s case being presented to a three-member judicial panel.



Sjors Provoost, a software developer according to his website, <a href="https://twitter.com/provoost/status/1772694045350859205">said</a> the second day “went incredibly slowly” and like Soleimani, mentioned that some of the questions posed by the panel were “off the mark.”



He expressed disappointment about how “Objection!” wasn’t being used in the trial, unlike the US court system. The term was a favorite of both the defense and prosecution in <a href="https://blockworks.co/news/sam-bankman-fried-found-guilty">Sam Bankman-Fried’s trial last November</a>, and we quickly lost track of how many times it was used over the month-long saga.



— Katherine Ross



<h2 class="wp-block-heading">Things are different, but not too different</h2>



There’s more on-chain volume now than during the fiercest moments of the 2021 bull market —&nbsp;even if most of the space looks more or less the same.



March will mark the biggest ever month for <a href="https://blockworks.co/tag/dexs">DEXs</a>. Decentralized exchanges have posted roughly $236.9 billion in <a href="https://defillama.com/dexs/chains">volume</a>, which is already $2 billion more than November 2021, with nearly a week to spare.&nbsp;



Ethereum, Solana and Binance Smart Chain (BSC) are by far the largest venues, capturing over two-thirds of volume. In 2021, Ethereum and BSC contributed nearly 80%. Solana was still getting off the ground.



Read more: <a href="https://blockworks.co/news/cheatsheet-ethereum-l2s-active-addresses">Cheatsheet: Ethereum and L2s on track to beat Bitcoin for active addresses</a>



On-chain derivatives volumes are also at record highs (one wonders whether the Bank Secrecy Act violations consistently levied at offshore exchanges that offer margin on perps has a role in this).&nbsp;



Still, <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a>, now with its own <a href="https://blockworks.co/tag/meme-coins">memecoins</a> and digital collectibles, has lately processed more transactions than at any point in the past five years.&nbsp;



Ethereum in January hit its own milestone of close to 2 million transactions in a single 24 hour period. The price of ether (<a href="https://blockworks.co/price/eth">ETH</a>) traded 50% below its all-time high at the time.



Memecoins aside, novel stuff like Telegram bots and <a href="https://blockworks.co/news/defi-points-farming-crypto-investments">points farming have all boosted on-chain activity</a>. And while there’s a mess of new layer 1s, layer 2s and DeFi apps, it’s more than likely the same projects from last cycle will continue to benefit from new developments moving forward.



The overall rate of change at the top end of the industry is slowing down. More than 80% of the cryptocurrencies in the top-200 didn’t place at all in January 2018. Between the 2018 and 2021 peaks, that figure fell to 66%.



Comparing today to November 2021 shows only 77 different cryptocurrencies that now sit in the top 200. So, nearly two-thirds of the current top-200 were also in the top-200 as markets peaked in 2021.&nbsp;



Just another sign the market is maturing —&nbsp;<a href="https://blockworks.co/news/blackrock-ethereum-memecoins-tornado-cash-dusting">even with all its silliness</a>.



— David Canellis



<h2 class="wp-block-heading">The Works</h2>



HSBC’s got a new <a href="https://blockworks.co/tag/tokenization">tokenization</a> play. The bank is now offering a retail-focused, gold-backed token in Hong Kong, <a href="https://www.scmp.com/business/banking-finance/article/3256859/hsbc-launches-tokenised-gold-retail-customers-hong-kong-government-pushes-publicly-accessible">according</a> to the South China Morning Post.&nbsp;



A US judge tossed a proposed class-action lawsuit against Apple, Inc. over the computing giant’s alleged anti-competitive behavior toward crypto app payments, Law360 <a href="https://www.law360.com/articles/1817996">reports</a>.&nbsp;



Collider <a href="https://collider.com/cold-wallet-steven-soderbergh-oceans-eleven/">chatted</a> with the cast and crew of Cold Wallet, a new crypto-themed thriller that recently debuted at SXSW. The film was “presented” by Ocean’s Eleven director Steven Soderbergh.&nbsp;



Point72 Ventures, the investment firm founded by billionaire Steve Cohen, is backing a blockchain startup focused on vehicle titles. Champ Titles raised $18 million, Bloomberg <a href="https://www.bloomberg.com/news/articles/2024-03-27/point72-ventures-latest-bet-is-vehicle-titles-on-the-blockchain">reports</a>.&nbsp;



Stronghold Mining is being sued by an environmental group in Pennsylvania, Reuters <a href="https://www.reuters.com/legal/crypto-miner-pennsylvania-hit-with-lawsuit-over-pollution-bitcoin-mine-2024-03-26/">reports</a>.&nbsp;



<h2 class="wp-block-heading">The Morning Riff</h2>



Blast would probably prefer it if you stopped asking it to rollback the chain.



Luckily, whoever <a href="https://twitter.com/PacmanBlur/status/1772871466935013701">stole</a> $97 million from NFT project Munchables returned the funds.&nbsp;



No need for Blast, which launched earlier this year, to show how the sausage is made by reverting its ledger back before the hack. And there’s no need to develop billion-dollar smart contracts on the fly —&nbsp;by all accounts a knuckle-whitening endeavor.



<a href="https://blockworks.co/tag/layer-2-2">Layer 2s</a> may be necessary evils to scale Ethereum, but sticky incidents like these are bound to repeat in the near future.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">”noooo we have to pretend it was decentralized” why the hell should we do that for??? if anything this is a great time to be truthful about what this system is so that everyone understands what they’re getting into&mdash; Eric Wall | OP_😺 (@ercwl) <a href="https://twitter.com/ercwl/status/1772779794091921421?ref_src=twsrc%5Etfw">March 27, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Ethereum got away with undoing The DAO hack nearly a decade ago without technically rolling back the chain. But it was a deeply controversial —&nbsp;and consequential —&nbsp;event.



It seems unlikely that the current crop of layer-2s, which includes <a href="https://blockworks.co/news/base-coinbase-l2-success">Coinbase’s increasingly popular L2, Base</a>, can forever avoid flexing any god-mode powers they possess.



— David Canellis



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alexey pertsev

Bank Secrecy Act vs crypto: A new DOJ lawsuit revives old tactic

<div id="highlights-block_6307baeefea3f" class="highlights">
 <ul>
 <li>Coin Center’s Peter Van Valkenburg, said OFAC’s decision to sanction Tornado Cash and 45 related Ethereum addresses exceeds its authority</li>
 <li>Code is not the same type of “property” Congress allows OFAC to sanction, Coin Center argued, and will to take the battle to court, if needed</li>
 </ul>
 
</div>



In a new report, non-profit blockchain advocacy group Coin Center argues that the recently-sanctioned Tornado Cash smart contracts are not entities the Office of Foreign Asset Control can blacklist.&nbsp;



Peter van Valkenburg, Coin Center’s director of research, claims in Coin Center’s latest <a href="https://coincenter.substack.com/p/how-does-tornado-cash-actually-work" target="_blank" rel="noreferrer noopener">report</a> that OFAC’s move to sanction Tornado Cash and 45 related Ethereum addresses exceeds its authority, as granted by Congress in the <a href="https://uscode.house.gov/view.xhtml?path=/prelim@title50/chapter35&amp;edition=prelim" target="_blank" rel="noreferrer noopener">International Emergency Economic Powers Act</a> (IEEPA). 



“IEEPA empowers OFAC to sanction ‘property in which some foreign country or national has an interest,’” Van Valkenburg wrote in the report published Thursday. “Does the Tornado Cash listing fit within these powers, or is it statutory overreach?



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We believe it is clearly overreach,” van Valkenburg wrote.</blockquote>



Van Valkenburg and Coin Center argue that Tornado Cash is a software tool used by far more than just foreign countries and nationals. It is decentralized code, with scant few contracts OFAC singles out for sanction that actually can be updated by any human, and these are not used to control, mix or move user funds, Van Valkenburg added.&nbsp;



“None of the core contracts that provide privacy tools to users can be upgraded, changed, or altered,” Van Valkenburg said. “The privacy that users get from these contracts is guaranteed with math and software that is as immutable as the Ethereum blockchain itself.” 



The IEEPA allows OFAC to block “transactions” involving property in which a foreign country or national has interest, Van Valkenburg said, but this terminology does not apply to Tornado Cash activities.&nbsp;



“The individual choice to move one’s tokens from a personal address to a Tornado Cash address is no more a ‘transaction’ with another person than moving one’s valuables from a drawer in one’s home to a safe in one’s home,” Van Valkenburg argues. “At no point does any third party have any control or power during the movement.”&nbsp;



The question of if or how OFAC can place sanctions against a code has been <a href="https://cms.blockworks.co/decentralized-or-not-officials-say-tornado-cash-responsible-for-illicit-activity/" target="_blank" rel="noreferrer noopener">central</a> to the discussion around Tornado Cash in recent weeks.&nbsp;



The Treasury Department argues that there are people who can alter Tornado Cash’s code, and it is their responsibility to ensure that illicit activity does not occur.&nbsp;



“Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” Brian Nelson, under secretary of the Treasury for terrorism and financial intelligence, said on Aug. 8 when the sanctions were <a href="https://home.treasury.gov/news/press-releases/jy0916" target="_blank" rel="noreferrer noopener">announced</a>. “Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”



Since its launch in Aug. 2019, Tornado Cash has received over $7.6 billion worth of ether, “a sizable portion of which have come from illicit or high-risk sources,” a recent Chainalysis <a href="https://blog.chainalysis.com/reports/tornado-cash-ofac-designation-sanctions/">report</a> noted. Of this figure, about 18% of funds came from sanctioned entities, but, the report notes, almost all the funds were received before the entities were added to the sanctions list. 



Less than 11% of funds received by the recently-sanctioned crypto mixing service Tornado Cash were stolen from other cryptocurrency exchanges and protocols, according to Chainalysis.



Coin Center, which has been a vocal opponent of OFAC’s decision to sanction Tornado Cash since the decision was announced earlier this month, has released a series of reports detailing how the mixing service works and what falls within OFAC’s powers.



The advocacy group said on Aug. 15 that it would be exploring taking OFAC to court over the Tornado Cash matter. 



The report comes shortly after Dutch financial crimes agency FIOD <a href="https://cms.blockworks.co/netherlands-arrests-suspected-tornado-cash-dev-days-after-us-sanctions/" target="_blank" rel="noreferrer noopener">arrested</a> a 29-year-old Tornado Cash developer in Amsterdam following OFAC’s sanctions announcement.



A Dutch judge ruled Wednesday that Alexey Pertsev may be held in jail without bail for up to 90 days while awaiting a public hearing.



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Coin Center Condemns Tornado Cash Sanctions

Shalini Nagarajan

<div id="highlights-block_630353d1682f7" class="highlights">
 <ul>
 <li>Tornado Cash developer Alexey Pertsev was arrested earlier this month over alleged facilitation of money laundering</li>
 <li>Privacy advocates worry Pertsev’s arrest could have damaging consequences for open-source coders</li>
 </ul>
 
</div>



Supporters of Tornado Cash developer Alexey Pertsev gathered in Amsterdam to protest over the weekend, almost two weeks after he was <a href="https://cms.blockworks.co/netherlands-arrests-suspected-tornado-cash-dev-days-after-us-sanctions/" target="_blank" rel="noreferrer noopener">arrested</a> in the Dutch capital.



Dutch financial crimes agency FIOD suspects the 29-year-old programmer of facilitating money laundering through the <a href="https://cms.blockworks.co/crypto-mixers-and-privacy-coins-can-they-resist-censorship/" target="_blank" rel="noreferrer noopener">crypto-mixing</a> service. But the agency hasn’t specified under which laws Pertsev was arrested. He is yet to be charged with a specific crime, per the latest available information.



Pertsev’s arrest has sparked widespread backlash among open source developers, and an online <a href="https://www.change.org/p/open-source-development-is-in-danger-take-action-before-it-s-too-late-opensourcenotacrime-privacynotacrime-freealex-freepertsev-freealekseypertsev?recruiter=false&amp;utm_source=share_petition&amp;utm_medium=twitter&amp;utm_campaign=psf_combo_share_initial&amp;utm_term=petition_dashboard&amp;recruited_by_id=9309d090-1e59-11ed-8a28-6f6d0c34746d&amp;share_bandit_exp=initial-34212517-en-US" target="_blank" rel="noreferrer noopener">petition</a> decrying his detention has garnered almost 2,000 signatures.



DeFi (decentralized finance) aggregator 1inch Network had <a href="https://twitter.com/1inch/status/1560326568148226048" target="_blank" rel="noreferrer noopener">called on individuals</a> to join a protest rally in Amsterdam’s historic Dam Square, arguing developers, including Tornado Cash programmers, hold no control over how their code is used.



On Saturday, over 50 protesters held placards with slogans including: “Free Alex Pertsev,” “Writing open source code is not a crime,” and, “Will you arrest a gun maker for facilitating public shooting?”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><a href="https://twitter.com/hashtag/opensource?src=hash&amp;ref_src=twsrc%5Etfw">#opensource</a> is not a crime.<a href="https://twitter.com/hashtag/privacy?src=hash&amp;ref_src=twsrc%5Etfw">#privacy</a> is a human right. Thank you to our brothers and sisters in Amsterdam for going out to protest these self-evident truths. <a href="https://t.co/SFIAfT6I5n">https://t.co/SFIAfT6I5n</a>&mdash; Lefteris Karapetsas | Hiring for @rotkiapp (@LefterisJP) <a href="https://twitter.com/LefterisJP/status/1561038476832915458?ref_src=twsrc%5Etfw">August 20, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The Change.org petition, created by Helsinki-based product manager Daria Mironova, states the “accusations against Alex threaten to kill the entire open-source software segment.”



US authorities believe Tornado Cash is a primary tool for North Korean hacker crew Lazarus Group in laundering stolen cryptocurrency.&nbsp;



Earlier this month, the US Treasury sanctioned the mixer’s blockchain addresses, among others, rendering it illegal for US persons to interact with the tool.



The mixer’s front-end web app is now offline, although the actual protocol — which is powered by smart contracts — persists on the Ethereum blockchain.



Pertsev’s wife Ksenia Malik <a href="https://cointelegraph.com/news/wife-of-arrested-tornado-cash-dev-forbidden-to-speak-with-him-rally-organized" target="_blank" rel="noreferrer noopener">told Cointelegraph</a> last week that she hasn’t got the chance to contact him after authorities took him in. 



Malik said she didn&#8217;t expect someone could be arrested for writing open source code and expressed gratitude for support shown.



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alexey pertsev

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