Regulatory Spotlight Falls on Ethereum's Decentralized Finance Ecosystem Amid Sanctions on Anonymous Transaction Platform

The U.S. Treasury's Office of Foreign Assets Control (OFAC) added Tornado Cash to its Specially Designated Nationals (SDN) list on 8 August 2022. The sanction targeted the protocol's smart contract addresses on the Ethereum network. OFAC cited Tornado Cash's role in laundering cybercrime proceeds, including attacks attributed to the North Korea-linked Lazarus Group. OFAC redesignated Tornado Cash on 8 November 2022 under additional executive orders connected to the Government of North Korea. The sanction raised questions about how U.S. sanctions rules apply to permissionless code.

The EU enacts MiCA and a crypto transfer rule in 2023The EU published two regulations on 9 June 2023 that directly affect crypto asset services. The Markets in Crypto-Assets Regulation (MiCA), Regulation (EU) 2023/1114, introduced uniform licensing and conduct rules for crypto asset service providers across the bloc. The Transfer of Funds Regulation (TFR), Regulation (EU) 2023/1113, extended fund transfer reporting requirements to crypto asset transfers. Both regulations entered into force on 29 June 2023.

FinCEN proposes special measures on crypto mixingOn 19 October 2023, the Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rule Making under Section 311 of the USA PATRIOT Act. FinCEN designated convertible virtual currency (CVC) mixing as a class of transactions of primary money laundering concern. The proposal targeted mixing activity involving jurisdictions outside the United States. Covered financial institutions would have to file reports on CVC mixing transactions within 30 calendar days of detection.

Ethereum DeFi faces a direct privacy-compliance challengeThree enforcement actions between 2022 and 2023 — from OFAC, the EU, and FinCEN — have set a compliance floor for Ethereum DeFi. Protocols that use privacy features now face direct regulatory exposure in both the United States and the EU. Privacy technologies that obscure or mix transaction data are under active scrutiny in both jurisdictions. As the article's author states, no formal standard currently exists from the Ethereum Foundation or any regulator to guide developers through these requirements.

"Privacy that 'works' technically but fails on openness or censorship-resistance is a Pyrrhic victory; the cure cannot undermine the core value of permissionless access."

— Ethan Caldwell, Author, Crypto Daily, 26 May 2026 The EU published two regulations on 9 June 2023 that directly affect crypto asset services. The Markets in Crypto-Assets Regulation (MiCA), Regulation (EU) 2023/1114, introduced uniform licensing and conduct rules for crypto asset service providers across the bloc. The Transfer of Funds Regulation (TFR), Regulation (EU) 2023/1113, extended fund transfer reporting requirements to crypto asset transfers. Both regulations entered into force on 29 June 2023.

"Privacy that 'works' technically but fails on openness or censorship-resistance is a Pyrrhic victory; the cure cannot undermine the core value of permissionless access."

— Ethan Caldwell, Author, Crypto Daily, 26 May 2026 On 19 October 2023, the Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rule Making under Section 311 of the USA PATRIOT Act. FinCEN designated convertible virtual currency (CVC) mixing as a class of transactions of primary money laundering concern. The proposal targeted mixing activity involving jurisdictions outside the United States. Covered financial institutions would have to file reports on CVC mixing transactions within 30 calendar days of detection.

"Privacy that 'works' technically but fails on openness or censorship-resistance is a Pyrrhic victory; the cure cannot undermine the core value of permissionless access."

— Ethan Caldwell, Author, Crypto Daily, 26 May 2026 Three enforcement actions between 2022 and 2023 — from OFAC, the EU, and FinCEN — have set a compliance floor for Ethereum DeFi. Protocols that use privacy features now face direct regulatory exposure in both the United States and the EU. Privacy technologies that obscure or mix transaction data are under active scrutiny in both jurisdictions. As the article's author states, no formal standard currently exists from the Ethereum Foundation or any regulator to guide developers through these requirements.

"Privacy that 'works' technically but fails on openness or censorship-resistance is a Pyrrhic victory; the cure cannot undermine the core value of permissionless access."

— Ethan Caldwell, Author, Crypto Daily, 26 May 2026 "Privacy that 'works' technically but fails on openness or censorship-resistance is a Pyrrhic victory; the cure cannot undermine the core value of permissionless access."

— Ethan Caldwell, Author, Crypto Daily, 26 May 2026 Cryptocurrencies are highly volatile and involve significant risk. You may lose part or all of your investment. All information on Coinpaprika is provided for informational purposes only and does not constitute financial or investment advice. Always conduct your own research (DYOR) and consult a qualified financial advisor before making investment decisions. Coinpaprika is not liable for any losses resulting from the use of this information.