The Precedent That Changed Everything
On August 8, 2022, OFAC did something unprecedented: they sanctioned a smart contract.
Tornado Cash wasn't a company. It didn't have employees, bank accounts, or a physical address. It was code deployed on Ethereum—immutable, decentralized, and supposedly beyond the reach of any government.
OFAC sanctioned it anyway.
What This Means for Protocol Developers
If you're building a DeFi protocol, the Tornado Cash precedent creates direct personal liability:
- **Your protocol can be sanctioned** even if it's fully decentralized
- **You can be prosecuted** for developing sanctioned infrastructure
- **Users of your protocol** become sanctions violators if they interact with it
The founders of Tornado Cash are currently facing criminal charges. Not for directly laundering money—but for writing code that enabled others to do so.
The Compliance Imperative
The only way to avoid the Tornado Cash outcome is to build compliance into your protocol from day one.
This means implementing on-chain sanctions screening before:
- Accepting deposits
- Executing swaps
- Originating loans
- Distributing yields
OFAC Shield provides an oracle that your smart contracts can query in real-time. If a wallet is on the SDN list, the transaction reverts before it can execute.
The Path Forward
DeFi doesn't have to choose between decentralization and compliance. With the right infrastructure, protocols can remain permissionless for legitimate users while blocking sanctioned entities automatically.
Build the future. Just build it legally.
