ETH Deposited in Tornado Cash Declines by 60% After OFAC Sanctions

OCT 19, 2022 • 4 Min Read

Amey Dandawate

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🌅 Welcome!

The world’s leading decentralized stablecoin and its backers are butting heads, and the IRS is expanding its digital asset guidance to include NFTs. Yes, that includes your ape pictures.

Today, we take a look at the aftermath of sanctions on Tornado Cash and our Research Team provides an update on a gaming guild.

This is the Delphi Daily. Let’s dive in.


🚨 In Case You Missed It

  • a16z says it does not support the idea of breaking MakerDAO‘s governance into smaller units called MetaDAOs.
  • The IRS releases draft guidance for the 2022 tax year explicitly stating that digital assets include NFTs as well.
  • Former Celsius exec Aaron Iovine joins JPMorgan as executive director of digital assets regulatory policy.
  • Interpol sets up a special team in Singapore to help governments fight crimes involving crypto.
  • Brazil’s Nubank plans to issue its own token called Nucoins which will offer discounts and perks to customers.

📊 ETH Deposited in Tornado Cash Declines by 60% After OFAC Sanctions

  • Tornado Cash is an open-source crypto mixer that enhances on-chain privacy on EVM-compatible networks. On Aug. 8, the Office of Foreign Assets Control (OFAC) imposed sanctions on the protocol.
  • As a result of the sanctions, ETH deposited in Tornado Cash has declined almost 60% from 224K ETH on the day before sanctions were announced to 91K ETH today. Unique depositors have also declined from 700-800 previously to under 100 currently.
  • The protocol uses multiple smart contracts that accept different quantities of ETH and ERC-20 deposits. Users can withdraw these deposits to different addresses at a later point. By using zero-knowledge proofs, the protocol breaks the link between the sender and the recipient.
  • Tornado Cash has been often used by hackers who use the service to erase on-chain links that can be traced to their real-world identity. Most recently, the attacker behind the TempleDAO exploit sent 1.9K ETH to Tornado Cash.
  • The tool can also be helpful for users who simply seek to enhance their on-chain privacy. Accordingly, US-based advocacy group Coin Center is suing OFAC over its sanctions.

⚡ Gaming Guilds Update

  • Despite increasing net profitability throughout H1 2022, Yield Guild’s current earnings don’t paint a picture of health and prosperity.
  • With the exclusion of June 2022, no other month has been net profitable for the guild this year. Yield Guild’s forward-looking earnings projections through year-end don’t give much hope for relief either.
  • At best, it could be interpreted as a slowdown and resulting plateau in net profitability. At worst, the guild may be set to see a continued decline in profits into the new year.
  • This would certainly call into question the viability of the guild’s current strategies.
  • The value of Yield Guild’s total assets under management was bolstered significantly by the YGG token launch in July 2021. Of course, this is in the context of the YGG token price increasing substantially post-launch.
  • However, what was positive for total AUM value on the way up is proportionally negative on the way down. With YGG down 96.9% from its all-time high, Yield Guild’s total AUM is unsurprisingly also down -93.4% from its high.

  • In the chart above, we have Yield Guild’s total AUM over time excluding their treasury YGG token holdings.
  • As you would expect, the overall value over time is significantly less than with the inclusion of the tokens.
  • Interestingly, there has still been a substantial decline in valuation relative to its December all-time high of $169M. Now sitting at approximately $45M, it has endured a 73.3% drawdown.
  • This means that not only have Yield Guild’s YGG token holdings suffered greatly but so have their NFT and other token investments. Contrast this with Merit Circle, whose total AUM has held up rather impressively.
  • For more on gaming guilds, Delphi members can read our Delphi Pro report here.

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