Circle effectively freezes USDC by 'blacklisting' all Tornado Cash ETH addresses

Circle's USDC has "blacklisted" all Tornado Cash Ethereum addresses listed in the US Treasury Department's penalty against the protocol.

Dune Analytics, a crypto data aggregator, announced the freezing, stating that the issuer of the USDC stablecoin had frozen over 75,000 USDC worth of funds linked to 44 Tornado Cash addresses sanctioned by the US Office of Foreign Asset Control's Specially Designated Nationals and Blocked Persons (SDN) list.

Tornado Cash is a decentralized program that allows users to hide the trail of cryptocurrency transactions on the Ethereum blockchain. A Twitter bot called USDC Blacklist, which searches the blockchain for USDC blocklists, highlighted the issue as it tweeted multiple times through Monday after the sanction was issued.

When an address is "blacklisted," it can "no longer receive USDC and all of the USDC possessed by that address is blocked and cannot be moved on-chain," according to the USDC "Blacklist Policy." As a result, any USDC currently held in a Tornado Cash address is now indefinitely frozen.

The addresses posted by USDCBlacklist match those in the US Treasury's public record. Tornado Cash co-founder Roman Semenov has also claimed that his Github account has been suspended as a result of the sanctions. Circle's CEO, Jeremy Allaire, stated in June that USDC has a "blacklist" function to ban addresses "when we are legally required."

The impact on Tornado Cash's capacity to operate is uncertain at this time. However, after studying the smart contracts, it was discovered that Tornado Cash currently holds around $81,000 USDC, which is now potentially frozen.

The Tornado Cash team has open communication channels with CryptoSlate, but they have failed to respond to inquiries throughout the day.