FT Cryptofinance: Defi is defi until Washington says that it is not

Hello and welcome to the FT. Come to the continued fight of crypto with the US government and remain ancient debut in the metaverse for Matt Hancocks. Do you think about what you want to read in this newsletter? Mail me to scott.chipolina@ft.com .

crypto evangelists will tell you that decentralized financing (Defi) is a window into a utopian future that replaces the curious glances of governments and supervisory authorities with privacy and financial freedom.

It turns out that the world view collapses as soon as the US government-or more precisely the Office of Foreign Assets Control-says. After OFAC Tornado Cash-a crypto service that is accused of acting as a channel for washed crypto worth billions of dollars-has added to his sanction list, the defi platforms have hurried to comply.

"In the course of sanctions, we have found an enormous interest in our sanction testing and compliance solutions," said me Esteban Castaño, co-founder and managing director of the well-known blockchain analysis company TRM Labs this week.

TRM Labs has experienced a five-time increase in the incoming interest via his website between July and August-in accordance with the sanctions of OFAC against Blender and Tornado Cash, two "mixers" that can be used to blur the trail of cryptotelder. According to the US Ministry of Finance, both platforms were used by North Korean hackers.

Chainalysis, another established blockchain analytics company, has recorded an increase in page views via the company's oracle called Smart Contract, which searches crypto wallet addresses for sanction risks-since the Tornado Cash name.

"Neither full transparency nor total anonymity are ideal - in defi or crypto in the broader sense. Ultimately, the supervisory authorities need an appropriate level of supervision," said Andrew Fierman, head of the sanction strategy at Chainalysis.

It is also not just the decentralized finance that draws attention to itself. Changpeng Zhao, Managing Director of the Krypto exchange Binance, spoke to my colleagues from Financial Times in March, only a few days after Russia's large-scale invasion in Ukraine triggered widespread concerns about the use of crypto to avoid western sanctions.

"The OFAC sanctions are not a joke.

While the bypass of crypto sanctions has been in the spotlight for months, there is another feeling of urgency on behalf of the Defi community to stick to it. At the beginning of this month the tron founder and generally large crypto name Justin Sun was temporarily blocked by the popular defi platform AAVE after someone accidentally sent him "0.1 ETH from Tornado Cash".

"Maybe many crypto companies assumed, 'Well, it is unlikely that I will still take any risk.

When calling that was all about Tornado Cash, Paige Berges, lawyer of the Ropes and Grey law firm for fighting corruption and international risk that OFAC's behavior was nothing new.

"This is how the US supervisory authorities have always proceeded, I think in particular ofac, that is: 'Well, hard, you want to use the US financial system? These are the conditions.' And as long as you continue to have the leverage you have, or the US financial system continues to have the leverage and influence," said Berges.

But for those who are really faithful to the defiUtopia, not everything has been lost yet. Matthew Green, who teaches cryptography at John's Hopkins University, has archived a version of the Tornado Cash source codes online. He said he had worked this code as a researcher and used it for the lessons.

Defi data protection defenders even have an ally-you may be surprised to hear-in the congress. US Congresser Tom Emmer This week he said: "Technology is Neutral, and the expectation of privacy is neutral ”.

• This week will go into the history books when the week when former British Health Minister Matt Hancock entered the meta verse. If you ask me, hancocks avatar looks much more like Jason Statham as a member of the West Suffolk, but in any case you shouldn't miss the great version of my colleague Jemima Kelly about the good-looking Tory.

• Coinbase was hit by a variety of problems this year, which ranged from revoked job offers to a falling share price. This week Chief Executive Brian Armstrong said that he wanted the stock exchange to stop relying on trade income so much, which would mean a significant change of strategy.

• The Singapore's Supreme Court recognized the appointment of liquidators for the collapsed crypto hedge fund Three Arrows Capital this week. In July of this year, the liquidators, the directors of 3AC - SU ZHU and Kyle Davies - claimed not yet "worked with them in a meaningful way". This week a person familiar to me that the insolvency administrators had seen "The Beginnings of Cooperation" with the directors of 3AC in the past few weeks.

Hong Fang, Managing Director of the Okcoin crypto exchange, criticized competitors who had put funds in sponsoring deals during last year's crypto bull market, just to see how their number of employees shrank after this year's market crash.

"Marketing editions, sponsorship editions. I saw some companies that have invested a lot of money there. It works in a bull market, but not necessarily in a bear market."

data-mining

One of the most interesting aspects of the name Tornado Cash from OFAC is whether it is an effective policy to sanction Smart Contracts in contrast to companies or certain individuals - the type of things that normally end up on sanction lists.

Data compiled by CryptoCOMPARE indicates that the designation already proves to be effective in order to limit the number of transactions in the mixing service. Between August 8 - the date of naming - and early this week, both withdrawals and deposits have decreased steadily.

I will rewrite a tweet that I remember how he made the round deep into Defi Twitter: "I think what I do is important.. But don't go to prison."

that was for this week. We'll see you at the same time next Friday. Until then a nice weekend!