Did Sanctioning Tornado Cash Work?

A new report from the New York Fed suggests it did – with some important caveats.

The New York Federal Reserve published a report on Wednesday examining the impact of sanctions against the crypto mixer Tornado Cash.

The report found that the sanctions did have an effect on Tornado Cash usage, which dropped by about 90% after the sanctions were first imposed. However, the report also noted that Tornado Cash usage has recovered to some extent over the past two years.

The report also found that while some block proposers are including Tornado Cash transactions in blocks, block builders are largely excluding them.

This is likely due to the fact that block proposers are not directly subject to the sanctions, while block builders are. The report also found that validators that process blocks containing Tornado Cash transactions generate lower fees than validators that process blocks without Tornado Cash transactions.

According to the report, this suggests that validators that are processing Tornado Cash transactions are more likely to be motivated by ideological reasons than by pure profit. The report also found that Tornado Cash's privacy functionality has deteriorated relative to before the sanctions, due to the drop in transaction volume and the number of different wallets engaging with the mixer.

Overall, the report found that the sanctions against Tornado Cash have had a mixed impact. While the sanctions did cause a sharp drop in Tornado Cash usage, the mixer has since recovered to some extent. The report also found that some entities in the crypto ecosystem are continuing to facilitate Tornado Cash transactions, despite the sanctions.

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