Many DeFi supporters were concerned that, in the wake of the Tornado Cash ban, crypto exchanges, which are important Ethereum validators, would cave to pressure and implement protocol-level censorship.
The question of which option crypto service providers would select between decentralization and censorship in the form of compliance has become more and more heated in light of the recent ban on the cryptocurrency mixing tool Tornado Cash and the following arrest of the Tornado Cash developer.
As Ethereum (ETH) transitions from its existing proof-of-work (PoW) blockchain to a proof-of-stake (PoS) mining consensus, the issue has gained increased attention. A Twitter user noted that more than 66% of validators on the Beacon chain (an Ethereum PoS chain) will follow the rules of the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury with the switch less than a month away.
Brain Armstrong, the CEO of Coinbase, said that the company will opt to shut down staking services rather than comply with compliance requests and implement protocol-level censorship.
The acts of Coinbase, Kraken, and other well-known cryptocurrency exchanges, which also serve as important ETH validators on the Beacon chain, were the subject of rising rumors.
Many thought that centralized crypto exchanges would opt for protocol-level censorship over preventing specific transactions from being made from forbidden crypto mixers like Tornado Cash.
The OFAC sanctions, which made all cash transactions involving tornadoes illegal, are to blame for the current predicament. However, decentralized finance (DeFi) experts say the sanction has complicated the situation. Regulators have chosen to outlaw the protocol rather than penalizing a specific address or region.
Many protocols and exchange operators have shied away from dealing with anything associated with Tornado Cash as a result of the ban, including ETH transactions made through the crypto-mixing service.