Leading decentralized exchange dYdX released a post acknowledging in the early hours of 11 August that it blocked user accounts linked to the sanctioned Tornado cash. This however led to several other unrelated accounts being banned as well, triggering an outcry.
The DEX then took to Twitter to address the issue,
“We were recently made aware of an issue related to Tornado that was causing many wallet addresses to be blocked from accessing our exchange. We have rectified this and you can read the full announcement here.”
In the blog post, dYdX said that with the help of compliance vendors, it has scanned and flagged accounts associated with or received funds from the Tornado Cash app, in line with the US Sanction list by the U.S. Treasury’s OFAC.
This however led to a significant increase in accounts flagged by its compliance provider that were subsequently blocked by dYdX.
In response, dYdX wrote, “Many accounts were blocked because a certain portion of the wallet’s funds [in many cases, even immaterial amounts] were associated at some time with Tornado Cash, which was recently added to the sanctions list by the U.S.”
dYdX Mistakenly Banned Unrelated Accounts
Later, the exchange explained that it has lifted restrictions on the incorrectly banned accounts while noting that these users were never directly engaged with Tornado Cash and that they may not have known the origin of the funds transferred to them.
“We have made adjustments, within the limits of our compliance policies, that have unbanned certain accounts and we will continue to make efforts to limit flagging and track this issue moving forward,” the trading platform added.
Tornado Cash, a privacy and transaction mixing service on Ethereum, has been in the media in recent days after the protocol was sanctioned by the US Treasury.
On August 8, the ethereum mixer, and all the crypto addresses related to the platform, were officially banned by the U.S. Treasury Department’s Office of Foreign Asset Control [OFAC].
The move came after the privacy-enhancing app was allegedly used by the North Korean hacking group Lazarus to launder stolen funds.
Following the ban, the internet hosting service for software and open source code development, Github, deleted some of the Tornado Cash commits and suspended the project’s contributors.
