Andrew Hinkes, partner at K&L Gates and adjunct professor at NYU, and Martin Koeppelman, co-founder of Gnosis, talk about the sanctions on Tornado Cash, how they will impact Ethereum on the base layer, and the likelihood of having two chains.
Show highlights:
- the legal meaning of the OFAC sanctions on Tornado Cash and why it is causing complications
- how legislation is built for the fiat world, and how in DeFi and crypto there’s no clarity
- how miners have changed their behavior prior to the Merge
- whether a proof of work chain or a proof of stake chain would be more censorship resistant
- whether laws apply to validators in a PoS chain
- the ways in which the government could provide more clarification
- the different entities involved in Proof of Stake
- the liabilities for each entity in PoS and what secondary liability is
- how the task of the bidder can be described as a mathematical optimization problem
- whether Lido is exposed to US regulations
- how long would it take for a large staker like Coinbase to stop being a validator
- how a user-activated soft fork works and the conditions in which a fork could happen
- whether social slashing is enforceable considering it is not in the protocol
- the likelihood of Ethereum becoming a permissioned system
- the role of Flashbots’ relay code and what it means for Ethereum’s censorship resistance
- how DeFi’s exposure to US-based institutions can affect the likelihood of the chain complying with sanctions
- whether DAI is just wrapped USDC
- how MakerDAO is trying to be more independent of USDC
- why US-based companies will choose a conservative path, considering the lack of guidance
- the importance of educating the regulators
- how cash and crypto are the only remaining private payment methods
Thank you to our sponsors!
Crypto.com: https://crypto.onelink.me/J9Lg/unconfirmedcardearnfeb2021
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Andrew
Twitter: https://twitter.com/propelforward
Martin
Twitter: https://twitter.com/koeppelmann
Previous Coverage of the Tornado Cash Sanctions on Unchained:
- Is TRM Labs Blocking Addresses From DeFi Protocols? Ari Redbord Says No: https://unchainedpodcast.com/is-trm-labs-blocking-addresses-from-defi-protocols-ari-redbord-says-no-ep-387/
- Tornado Cash Sanctioned. Did the Government Overstep Its Bounds?: https://unchainedpodcast.com/tornado-cash-sanctioned-did-the-government-overstep-its-bounds-ep-384/
- The Chopping Block: Did OFAC Overstep by Sanctioning Tornado Cash?: https://unchainedpodcast.com/the-chopping-block-did-ofac-overstep-by-sanctioning-tornado-cash-ep-386/
Social Slashing and Censorship on ETH
Axios summary of the situation: https://www.axios.com/2022/08/23/how-transactions-might-be-censored-after-ethereum-changes-next-month
BitMex research on how the sanctions affect Ethereum: https://blog.bitmex.com/ofac-sanctions-ethereum-pos-some-technical-nuances/
Ethermine banning transactions: https://twitter.com/takenstheorem/status/1560690035955011585?s=20&t=59hWdhr8_O-hYA8uYnZJ8w
Nic Carter’s article: https://www.coindesk.com/layer2/2022/08/25/if-ethereum-starts-slashing-it-burns/
Eric Wall’s article on social slashing: https://ercwl.medium.com/the-case-for-social-slashing-59277ff4d9c7
CoinDesk article: https://www.coindesk.com/tech/2022/08/23/as-censorship-on-ethereum-begins-could-this-open-sourced-code-help-counter-it/?outputType=amp
Hetzner banning Ethereum users: https://twitter.com/koeppelmann/status/1563146729314467840?s=20&t=ubFhCQqrQyHKfflgMHEmJw
Tornado Cash
- Treasury Press release:
- https://home.treasury.gov/news/press-releases/jy0916#:~:text=WASHINGTON%20%E2%80%93%20Today%2C%20the%20U.S.%20Department,since%20its%20creation%20in%202019
- Developer arrested: https://www.fiod.nl/arrest-of-suspected-developer-of-tornado-cash/
- Rep. Emmer’s letter: https://twitter.com/RepTomEmmer/status/1562084891247902721?s=20&t=9J3c3scVdxsLKVcFovaWdQ
- Tornado Cash post on compliance: https://tornado-cash.medium.com/tornado-cash-compliance-9abbf254a370
- Coin Center’s article authored by Jerry Brito and Peter Van Valkenburgh: https://www.coincenter.org/u-s-treasury-sanction-of-privacy-tools-places-sweeping-restrictions-on-all-americans/
- Second Coin Center article authored by Jerry Brito and Peter Van Valkenburgh: https://www.coincenter.org/analysis-what-is-and-what-is-not-a-sanctionable-entity-in-the-tornado-cash-case/
- Coin Center may challenge the US Treasury's decision to sanction Tornado Cash: https://decrypt.co/107475/coin-center-tornado-cash-ban-court
- What the sanctions mean for privacy coins: https://www.coindesk.com/layer2/2022/08/09/what-the-tornado-cash-sanction-means-for-privacy-coins/
- Celebrities get Dusted: https://decrypt.co/es/107090/tornado-cash-dusts-public-wallets-jimmy-fallon-brian-armstrong-steve-aoki-logan-paul
DAI and USDC
- Maker forum: https://forum.makerdao.com/t/the-path-of-compliance-and-the-path-of-decentralization-why-maker-has-no-choice-but-to-prepare-to-free-float-dai/17466
- https://decrypt.co/107273/makerdao-founder-dai-drop-dollar-peg-tornado-cash-usdc
- Circle freezes USDC in sanctioned wallets: https://www.theblock.co/post/162172/circle-freezes-usdc-funds-in-tornado-cashs-us-treasury-sanctioned-wallets
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Flashbots
- Flashbots relay open source: https://twitter.com/hasufl/status/1559908331145265156?s=20&t=gtHe5sVetxQXVKfZL2VMYg
- MEV Boost: https://www.alchemy.com/overviews/mev-boost
- MEV in ETH PoS: https://writings.flashbots.net/writings/mev-boost-call-for-testing
- Proposer-Builder separation: https://www.alchemy.com/overviews/proposer-builder-separation