US Government Launches All-Out Attack on Non-Carceral Challenge

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Developers of decentralized financial applications should pay attention to this. Federal agencies do not care whether you control or ever control user funds. You are still liable under the Bank Secrecy Act (BSA). The Department of Justice (DoJ), Office of Foreign Asset Control (OFAC), and Securities and Exchange Commission (SEC) have targeted decentralized service providers SamuraiTornado Cash, Consensys and more. Stocks directed at least two other companies—Phoenix Wallet And Wasabi Wallet—to leave the American market completely.

Under Gary Gensler, the SEC has gone so far as to target individual developers employed by startups creating decentralized technologies. request for a list of the names of Consensys developers who contributed any code, publicly or privately, to the Ethereum Merger, a September 2022 upgrade to the Ethereum blockchain that moved the network’s consensus method from proof of work to proof of participation. .

Measures like these undoubtedly have a chilling effect on decentralized and privacy-preserving technologies, as regulators now irrationally view developers as bankers (or perhaps as competitors to bankers).

Samurai Wallet

In April 2024, the Ministry of Justice indicted Keonne Rodriguez and William Lonergan, both founders of the self-custodial Samurai portfolio. Both men were charged with conspiracy to commit money laundering and conspiracy to operate an unlicensed money services business. And this despite the fact that Samourai was not a bank. It simply provided software-automated financial processes.

Rodriguez’s lawyer plans to file a motion to dismiss the charges against his client and Lonergan. It will include a letter from U.S. Senators Cynthia Lummis (R-WY) and Ron Wyden (D-OR). sent to Attorney General Merrick Garland in which the two argue that non-custodial crypto software cannot be a money transfer service and that the DoJ is threatening to criminalize Americans offering non-custodial crypto asset software services. The representatives then went explain that “…users of these services retain sole possession and control of their crypto assets” and “…All transactions are signed and processed on the user’s local device without third party access.”

Cash Tornado

In addition to the allegations against Samourai, Alexey Pertsev, developer behind Ethereum-based crypto transaction anonymizer Tornado Cash, faced legal charges on several continents. Ethereum inventor Vitalik Buterin sympathizes with Pertsev and donated 30 ETH to his legal defense fund.

Tornado Cash’s future darkens in August 2022, when the US Treasury Department’s OFAC sanctioned for allegedly facilitating money laundering and serving sanctioned entities. In August 2023, U.S. federal law enforcement officials accused Tornado Cash, accused of laundering more than $1 billion in illicit funds, including hundreds of millions for North Korean hackers. The charges were filed in the Southern District of New York. Pertsev’s problems are international in scope. In the Netherlands, the developer was find guilty of laundering $1.2 billion, a verdict he has appealed.

Much to the dismay of crypto founders everywhere, the failure of Pertsev’s defense has been cited often in crypto circles: developers don’t control the dapps they release into the wild, so they shouldn’t. take responsibility.

Crypto enthusiasts have long argued that developers of open-source financial software should not be held liable for user behavior. Early feedback suggests that the justice system sees things differently. The Pertsev ruling thus sets a chilling precedent for criminal liability for dapp developers. As Attorney General Merrick Garland declared:

“These charges should serve as a further warning to those who think they can turn to cryptocurrency to cover up their crimes and hide their identities, including cryptocurrency mixers: No matter how sophisticated your scheme is or how many attempts you have made to anonymize yourself, the Justice Department will find you.”

Uniswap

Along with many other crypto companies, Uniswap, a decentralized crypto exchange, received a Wells Notice from the SEC. A Wells Notice is a letter from the SEC informing a company that it may take enforcement action against it. In its April 2024 letter, the SEC accused Uniswap of operating as an unregistered securities broker-dealer and exchange. Uniswap seems ready to aggressively fight the charges.

“The Uniswap protocol is also in full compliance with US law. SEC action would primarily affect activity that clearly exceeds its authority,” argued Uniswap General Counsel, Marvin Ammori.

MetaMask

Ethereum technology conglomerate Consensys received a well notice of April 2024 The SEC also issued a warning regarding possible enforcement actions related to its MetaMask Swaps and MetaMask Staking products. The SEC accused MetaMask of being an unlicensed broker-dealer.

Fed up with the SEC’s approach to regulating the crypto industry, Consensys sued the U.S. Securities and Exchange Commission in Texas for what it had done. calls an “illegal seizure of authority”.

The exodus of American cryptocurrencies

As the SEC cracks down on decentralized tech developers, Phoenix Wallet and Wasabi Wallet have both halted services to U.S. customers, citing the SEC’s targeting of the two leading self-custodial cryptocurrency wallet providers. More exoduses are likely to follow.

If regulators consider self-custodial wallet providers to be money service businesses, it’s unclear whether self-custodial wallet providers — including innovations that are currently taken for granted, such as Lightning Network nodes — will be able to operate in the country. The SEC is waging a legal battle against non-custodial services, and it could prompt U.S. partners to adopt draconian policies as well. Unfortunately, there won’t be a resolution for the cryptocurrency industry for years, and one or more of these cases could end up in the Supreme Court.

Big banks and powerful players in the US government don’t want decentralized financial technology to make a difference. So they’re trying to destroy it covertly, without giving the industry the chance to be properly regulated by elected legislatures. The only option for cryptocurrencies? Fight for its survival.

Kadan Stadelmann

Kadan Stadelmann is a blockchain developer, operations security expert and Komodo Platform Director of Technology. His experience ranges from working in operations security in the government sector and launching technology startups to application development and cryptography. Kadan started his journey in blockchain technology in 2011 and joined the Komodo team in 2016.

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