Tornado Cash Sanctions 🌪

    What is Tornado Cash and why would it be targeted by the US government? Why might an address interact with the service?

    Introduction

    Tornado Cash is a decentralized and noncustodial privacy protocol designed on the Ethereum blockchain by the Zcash team. It is an open source solution that allows users to send ETH or ERC-20 through their smart contracts. It ensures privacy by providing users with a new address to withdraw their asset, so it can’t be linked to the deposit address.

    The goal of Tornado.Cash, since it's founding in 2019, has been to enforce privacy by using smart contracts that allow token deposits from one address and withdrawals from another. Both Bitcoin and Ethereum transactions are public and visible, which puts users at risk of getting their spending habits exposed, and most people don’t like it - and Tornado comes in very handy for individuals who don’t want their transactions to be accessible by anyone and everyone!

    Even though the goal of Tornado seems to be a great idea, it also raised a lot of issues and speculation around topics such as money laundry and the possibility of avoiding taxes etc. Due to these and other reasons, the US government imposed sanctions on the platform, as a means of stopping users from abusing the product. In this dashboard, I will investigate the overall picture of Tornado, by looking at some key metrics, such as who was and is using Tornado the most, as well as which tokens have seen the biggest volume.

    Methodology

    • In order to filter out the Tornado transactions, I have selected addresses using the following filter: WHERE label LIKE 'tornado cash’ - this seemed to yield the best results and was also the most efficient way of filtering, since it’s a lot better than manually copying the addresses.
    • I have decided to look at the Tornado scene for the past 60 days. Even though the sanctions have been announced very recently (in the past few days), in order to understand the ecosystem best, it is necessary to include a bigger timeframe. Having said that, I have also included some total numbers for all-time in order to be able to clearly see how much money really has been sent through Tornado.
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    -- Tornado in the past 60 days --

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    -- Which wallets have interacted with Tornado the most? --

    It seems that the sanctions didn’t stop many users - we can still see quite a big number of transactions in the past few days, as well as a big USD and ETH volume. The past few days have not seen huge spikes as earlier in the month, however having a daily volume of almost $8M on the 8th of August is a lot of money! The data is not very convulsive as of now and we need to wait a few more days or weeks to see how much the sanctions have affected the Tornado ecosystem.

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    Key points:

    • There definitely are a lot of whales who are using Tornado to hide what probably should not be hidden - we can see users with over 200 transactions with some of them taking a third of the total volume transacted in the past 60 days - that is a lot of money!
    • It is also interesting to see that most users are transacting less than 0.1ETH per transaction, which is not what we would expect to see. It could be that whales are dividing their huge amounts so that they don’t seem suspicious - after all, people usually won’t be tracking a transaction of 0.05 ETH etc, it’s the big transactions that gain the most attention.
    • However, we can still see many transactions of 5 ETH +, which shows us the scale of how many users were trying to hide the big, more suspicious transactions.

    -- How much ETH are users sending through Tornado? --

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    -- Which tokens have seen the most traction on Tornado? --

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    ETH, as a native token to Tornado is the top 1 asset traded. However, we can also see quite a lot of TORN and DAI being sent through Tornado.

    Conclusion

    🌪 This analysis has investigated how many users have been attracted to what Tornado has on offer - the possibility of hiding your transactions away from the rest of the world. After the sanctions imposed by the US government, one would expect to see a massive decrease in the product - however, I don’t think we can conclude that this is happening as of now. The metrics show that there has been a small decrease in the daily ETH or USD volume transacted on Tornado, however, it probably is too early to see how much these sanctions will really change. In conclusion, we have seen that ETH is the top one token transacted on Tornado, and we have labelled some addresses as the ones who have interacted with the platform the most. 🌪

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