Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Tornado Cash (TORN) shows why DeFi needs Regulation

I think Tornado Cash (TORN) shows why speculators should welcome the regulation of decentralized finance (DeFi) and cryptocurrency.


Tornado Cash (TORN) is a cryptocurrency mixer, or smart-contract mixer. Crypto mixers try to hide cryptocurrency transactions pooling funds from many users and constantly shuffling them around. Tornado Cash makes money by charging a small service fee on each transaction.


Criminals use Tornado Cash (TORN) to launder money, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) alleges. Dramatically, the OFAC claims Tornado Cash has laundered over $7 billion worth of cryptocurrency.

Tornado Cash is a Money Laundry

For example, the Lazarus Group used Tornado Cash to launder over $455 million in stolen money, the OFAC alleges. The Lazarus Group is a notorious hacker organization the North Korean government operates. For example, the Federal Bureau of Investigation (FBI) accuses the Lazarus Group and APT38 of stealing $620 million worth of Ethereum (ETH) on 29 March 2022.

Tornado Cash also laundered $96 million in loot from the June 24, 2022 Harmony Bridge Heist and $7.8 million in stolen funds from the August 2, 2022 Nomad Heist, the OFAC charges.


Predictably, the OFAC has sanctioned Tornado Cash (TORN). Hence, it is illegal for US residents to use Tornado Cash, the Electronic Foundation (EFF) explains.


Conversely, it is legal for US residents to use Tornado Cash’s technology. An OFAC frequently asked question even states: “While engaging in any transaction with Tornado Cash or its blocked property or interests in property is prohibited for U.S. persons, interacting with open-source code itself, in a way that does not involve a prohibited transaction with Tornado Cash, is not prohibited.”


“For example, U.S. persons would not be prohibited by U.S. sanctions regulations from copying the open-source code and making it available online for others to view, as well as discussing, teaching about, or including open-source code in written publications, such as textbooks, absent additional facts,” the OFAC states.

Hackers can Takeover DAOs

Hackers took over Tornado Cash’s decentralized autonomous organization (DAO) using vote fraud on 21 May 2023, CoinDesk reports.

To elaborate, the DAO governs Tornado Cash’s ecosystem. The DAO allows people who own TORN to vote. TORN owners can make proposals for changes to Tornado Cash.

Hackers got into the DAO by making a false proposal that made enough fake votes to take control. Hence, the hackers can steal all of Tornado Cash’s funds by withdrawing locked tokens.


Moreover, a Tornado Cash community member alleges the hackers minted over one million Torn (worth over $4.42 million) for themselves, CoinDesk reports.


Hence, Tornado Cash (TORN) shows DAOs which are the most popular DeFi platforms can be hacked. Cyber predators can take over DAOs and turn them into counterfeiting machines. Thus, all the claims of immutable, and hacker-proof DAOs and cryptocurrencies are bullshit.


I think any DeFi protocol, DAO, and cryptocurrency can be hacked or cloned, given even time and resources. Thus, you need to be leery of any DeFi protocol that claims to be totally safe.


Mr. Market still Believes in Tornado Cash (TORN)

Frighteningly, Tornado Cash (TORN) was CoinMarketCap’s 15th most trending cryptocurrency on 21 May 2023.


CoinMarketCap gave TORN a $4.17  Coin Price, a $4.528 million Market Capitalization, a $41.173 million Fully Diluted Market Cap, a Total Locked Value of $275.487 million, and a $1.937 million 24-Hour Market Volume on 26 May 2023. Tornado Cash had a $1.872 million Centralized Exchange (CEX) Volume and a $75,262 Decentralized Exchange (DEX) Volume on 25 May 2023.

They base those numbers on a Circulating Supply of 1.1 million TORN and a Total Supply of 10 million TORN. TORN was CoinMarketCap’s 991st  ranked cryptocurrency on 25 May 2023.


Hence, many speculators think Tornado Cash is a safe and legitimate DeFi and keep investing in it. Worse, people seem to be investing in something that resembles organized crime.


Yes, we need to Regulate DeFi now


I think Tornado Cash (TORN) justifies the US Securities and Exchange Commission’s (SEC) decision to declare 37 cryptocurrencies securities. To explain, the SEC can regulate a cryptocurrency if it is a security.


Requiring SEC registration for all cryptocurrencies could keep something like Tornado Cash out of the US markets. A better solution could be to set up a US Cryptocurrency Commission or a US Decentralized Finance (DeFi) Regulatory Agency or Commission. Thus, an organization dedicated to regulating and policing cryptocurrency and DeFi needed.

Garbage Meme Coins are Taking Over

One reason such an organization is needed is CoinMarketCap’s most trending cryptocurrencies. On 21 May 2023, CoinMarketCap’s three most trending cryptocurrencies were total garbage meme coins. They were Pepe (PEPE), Love Hate Inu (LHINU), and Doge CEO (DOGECEO).


These are Meme Coins which have no value, yet people are trading for them. Frighteningly, Pepe (PEPE) honors the Pepe the Frog meme, which is associated with racists and misogynists.


Disturbingly, CoinMarketCap gave Pepe a $625.223 million Market Capitalization, a $671.563 million Fully Diluted Market Cap, a $188.592 million 24-Hour Market Volume, a $171.622million CEX Volume, and a $16.970 million DEX Volume on 23 May 2023.


I think those numbers show millions of people are buying Pepe even though it is probably worthless. Frighteningly, Pepe had a 390.790 million pepe Circulating Supply, and a 420.690 billion Total Supply on 21 May 2023.

The Pepe Ponzi Scheme shows why DeFi needs regulation

I think those numbers show Pepe could be a pyramid or Ponzi scheme. A Ponzi Scheme is a scam in which fraudsters use money from new investors to pay earlier suckers. Consequently, the marks think the scheme makes money when it all it does is clean out suckers.


Even if Pepe is honest. I think it will be easy for hackers such as the Lazarus Group to loot Pepe as they did Tornado Cash (TORN).


The cryptocurrency world needs some means of shutting down things like Tornado Cash and Pepe. In other words, cryptocurrency and DeFi need regulation. Regulation will not be perfect but is far better than a ban.


I think regulation is the only way to save cryptocurrency and DeFi from themselves. Unfortunately, I think DeFi will have to get terrible before politicians and bureaucrats take action. Cryptocurrency fans and speculators need to embrace regulation if they want a future for their technologies.