75,000 Reasons for a Better Stablecoin

Just like that, Circle, the company behind the popular USDC, froze $75,000 worth of its stablecoin.

Cryptoland was abuzz recently as no less than the US Department of the Treasury lowered the boom on mixing service Tornado Cash.

That, according to reporting by The Block, was in direct response to the Treasury's announcement, in cooperation with the Office of Foreign Asset Control.

"Circle is a regulated company and conforms to sanctions compliance requirements," Circle explained in a statement to The Block. "We have addressed the sanctions and blocked the addresses associated with OFAC’s Tornado Cash designation."

Basically, Circle was able to blacklist Tornado wallets, which include the mixing service's own USDC pool.

Pretext for censorship is the go-to among minders: hackers and baddies in North Korea. Officials would love nothing more than for you to get caught up in the many good reasons for censorship -- they literally never run out.

ANOTHER PRECEDENT

Whatever the excuse, this sets another extremely dangerous precedent. Don't forget, earlier this year, Tether froze $160 million of USDT on Ethereum). It's another wake-up call for everybody working in the cryptocurrency industry. And it doesn't help matters that only two months ago Circle's CEO straight up denied the ability to freeze assets altogether, publicly chastising Crypto Twitter for spreading FUD. ?

In reality, USDC is reacting directly to the wishes of the US Treasury Department which has added Tornado Cash and Ethereum wallet addresses associated with the mixing service to its list of Specially Designated Nationals And Blocked Persons List (SDN). This has effectively made Tornado Cash illegal in the US.

The fact that blacklist capability can be (and is) written into Ethereum Virtual Machine (EVM) token contracts is a huge vulnerability and point of coercion for the state. It's going to be a real liability going forward for anyone wanting to do business on that chain.

By contrast, on the Bitcoin network, individual nodes can blacklist a Bitcoin address, but they risk forking themselves off of the network if they don't have the 51% of hash power to enforce it.

With an Ethereum smart contract, tokens in a blacklisted address simply cannot ever be moved because the contract will fail if a transfer from that address is attempted. Right now, any user who has sent funds to a now-banned Tornado smart contract finds themselves locked out of their USDC, potentially forever.?

This is a really scary move.

You can bet governments around the world will require blacklist capability on tokens now that USDC is proving it is viable. From day one, people warned about the consequences of this feature being added to the USDC contract. Now we have a centralized stablecoin company at the mercy of US regulation, running the fourth largest cryptocurrency in the world -- $55 billion of market cap is on the line.

FURTHER WEAPONIZING GOVERNMENT AGAINST CRYPTO

In the very near future, we're likely to see the US government more widely enforcing its 2019 FinCEN guidance. Under this rule, they can sanction decentralized finance applications in the same way they can sanction traditional financial institutions. And, as we're witnessing in real time, this means banning whenever they see fit.

Imagine having a business where your closest competitor could shut you down by adding one row to a database that competitor has complete control over.

What's more is how something as seemingly crypto-agnostic as the Infrastructure Reduction Act (IRA), presently working its way through the US bicameral legislature, is part of the above pattern.

GOT 87 THOUSAND NEW PROBLEMS, BUT CRYPTO AIN'T ONE

As the Washington Post outlines, the IRA "would put $80 billion toward beefing up the IRS" to the tune of 87,000 more tax collectors ripe for auditing you.

Yes you.

As the Post goes on to note, "More than half of the agency’s audits in 2021 were directed at taxpayers with incomes less than $75,000, according to IRS data. More than 4 in 10 of its audits targeted recipients of the earned income tax credit, one of the country’s main anti-poverty measures."

Thoughtful stablecoin users might also want to consider the often-incestuous relationship leading fiat-pegged coins have with regulators. Former enforcement personnel weave in and out of their boards, and quite a few crypto industry lawyers go on to work for regulatory agencies.

It's easy to develop a red-hatred for Circle and USDC, or to get lost in the technical minutiae. These are unproductive rabbit holes for your attention that lead nowhere.

The broader picture involves embracing a realistic, rational pattern, one we need to understand: governments are coming for your crypto.

The time for a better stablecoin is right now.