A federal court in Texas ruled Tuesday that the U.S. Treasury overstepped its authority by sanctioning decentralized crypto mixer Tornado Cash, crippling the government’s attempt to regulate the protocol. This marks the second regulatory defeat for the Treasury. In November, the U.S. Fifth Circuit Court ruled that the Treasury overstepped its authority by sanctioning similar immutable smart contracts.
The U.S. District Court for the Western District of Texas ruled that Tornado Cash’s immutable smart contracts could not be classified as “property” under the International Emergency Economic Powers Act (IEEPA). “It is ordered and adjudged that the judgment of the district court is reversed, and the cause is remanded…,” the ruling states. Following the ruling, Tornado Cash’s native token, TORN, has climbed past $25, an increase of over 200% by Wednesday morning, according to CoinGecko data. It has since settled to $19.78 at the time of writing.
“The immutable smart contracts at issue are not property because they are not capable of being owned,” the judgment stated, limiting the government’s ability to regulate open-source blockchain protocols. The Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash in August 2022, citing its alleged role in laundering $455 million in stolen crypto linked to notorious hackers North Korea’s Lazarus Group.
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