Coinbase said on September 8 that it will fund a lawsuit against the United States Treasury Department. The cryptocurrency exchange is sponsoring a lawsuit initiated by six individuals challenging Tornado Cash’s punishments. And on September 9, Gary Gensler, chairman of the Securities and Exchange Commission (SEC), indicated he was working closely with Congress to establish legislation to enhance cryptocurrency rules.

However, these two explanations are not mutually exclusive. The series of events demonstrates that governments are only reactive, as opposed to proactive, regarding decentralized money (DeFi).

In August, the Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash. Since its formation in 2019, OFAC claims the smart contract mixer has been used to launder more than $7 billion worth of bitcoin, including over $455 million stolen by hackers with ties to North Korea.

Brian Armstrong, the CEO of Coinbase, said in a statement that the Treasury went too far by taking “the unprecedented action of punishing a whole technology as opposed to particular people.” Coinbase stated, in addition to the contention that the penalties exceeded the department’s power, that the measures:

Remove crypto users’ privacy and security, harm innocent individuals, and stifle innovation.

The next day, Gensler doubled down on his call for more regulation of the DeFi industry, asserting that crypto firms could not flourish without it. “No aspect of the cryptocurrency markets is incompatible with the securities regulations. Regardless of the underlying technology, investor protection is of the same importance.”

As is the case with these punishments, detaining individuals for utilizing services for legal and even altruistic purposes, as well as locking up developers for producing open-source technology that was not unlawful at the time it was created, seems Orwellian on a grand scale.

Treasury authorities have recently reversed course and clarified in instructions that “interacting with open-source code itself in a manner that does not entail an illegal transaction using Tornado Cash” is not forbidden. Copying the protocol’s code, publishing the code, and viewing the website are all permitted, according to the guidelines.

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