Decentralized protocol Aave has banned the wallet address of Justin Sun, the founder and CEO of the Tron blockchain project, for unknowingly interacting with sanctioned Ethereum-based crypto mixer Tornado Cash.
On Saturday, Justin Sun took to Twitter to confirm that Ethereum-based DeFi protocol Aave had officially blocked his address after an unknown person sent him 0.1 ETH from Tornado Cash.
U.S. Sanctions Tornado Cash
Recall that the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) recently sanctioned Tornado Cash for helping bad actors launder crime proceeds, including those committed against victims in the U.S.
The sanctions come after the crypto mixer became a laundering hub for hackers who drained at least $1.4 billion from DeFi bridges and other crypto hacks since the start of this year.
Shortly after the sanctions, an unknown user sent 0.1 ETH from a blacklisted Tornado Cash contract address to big crypto-related firms, popular crypto figures, celebrities, and random traders, perhaps in an attempt to mock the U.S. Treasury.
According to blockchain security firm PeckShield, more than 600 addresses received 0.1 ETH from Tornado Cash. The list includes Binance, FTX, Beeple, Coinbase’s Brian Armstrong, Justin Sun, sifu.eth, and Ukraine Crypto Donation.
Decentralization in the Mud?
Surprisingly, at least five decentralized protocols, including Uniswap, Balancer, and dYdX, have blocked those who randomly received the ETH airdrop from the blacklisted wallet alongside those who have previously interacted with Tornado Cash, causing crypto users to question the concept of decentralization.
Defi. So decentralized that you have organizations blocking users wallets that have received transactions from tornado cash. Decentralization does not exist in a world where the elites rule. This is only the beginning. These protocols will be exposed one by one. #TornadoCash
— CRYPTONYMOUS (@_Cryptonymous__) August 13, 2022
The ban could also cause liquidation problems if crypto prices crash. This is because blocked DeFi users with active loans won’t be able to access their accounts to add liquidity and manage their Loan-to-value (LTV) to avoid forced liquidation.
1. Identify all major loans on @AaveAaveand plan possible liquidation cascade
2. Send ETH from @TornadoCash to all wallets with major loans
3. Let AAVE block all wallets
4. Short ETH
5. Initiate ETH dump
6. Watch liquidation cascade and nobody can do sth. about it
— αlex | αlex and Ωmega (@alexandomega) August 13, 2022
Some people believe that the ban is seemingly on the front-end, and users can still access their accounts through a command-line interface (CLI) or by forking the project to create their own front-end interface. Still, that is beyond the technical know-how of average DeFi users.
In a Twitter thread, the Aave team noted that they recently integrated TRM’s API to the platform’s IPFS front-end, which is why some users had issues accessing the Aave app.
According to the protocol, the integration helps identify wallets that interacted with Tornado Cash contracts after the sanctions. However, the API made incorrect calls and blocked wallets that received ETH from the mixer contracts without consent. The Aave team said the issue had been resolved, and Justin Sun and other users regained access to their accounts.