Tornado Cash Sanctions Could Return Warns Coinbase CLO

Key Points

• Tornado Cash Sanctions Could Return Warns Coinbase CLO
• US Treasury lifted sanctions on Tornado Cash recently
• Coinbase CLO says future sanctions are still possible
• Legal expert points to court precedents that support re-sanctioning
• A final court ruling is being pushed to protect Tornado Cash

In a major development for the crypto space, the U.S. Treasury recently removed Tornado Cash from its sanctions list. This move came after months of legal pressure and community outrage. While many saw this as a win for privacy and decentralized finance (DeFi), not everyone is convinced the battle is over.

Coinbase Chief Legal Officer Paul Grewal is among those sounding the alarm. According to him, the Treasury’s reversal doesn’t mean Tornado Cash is in the clear. He believes the government left the door wide open to re-impose sanctions at any time, which keeps the project—and the broader crypto industry—under a cloud of uncertainty.

This issue ties into the broader debate around government oversight and crypto privacy. It’s the same tension seen in topics like Tether’s growing investment in U.S. Treasury bonds, which signals a push toward regulatory compliance even as projects try to retain decentralization.

Grewal Warns of Legal Loopholes and Risks of Re-sanctioning

Paul Grewal argues that while the Treasury lifted sanctions, it didn’t provide any legal promise not to reinstate them. He cites a legal principle known as the voluntary cessation doctrine—a government or defendant ending a challenged action doesn’t automatically make the issue go away.

This concept has been confirmed in key court cases like Friends of the Earth, Inc. v. Laidlaw and FBI v. Fikre. In both instances, courts ruled that voluntary withdrawal doesn’t prevent future enforcement unless there’s a clear commitment not to repeat the same action.

Power does not recede voluntarily. It’s gasps and it gasps until it no longer can. @USTreasury filed yet another late Friday pleading against Tornado Cash. After grudgingly delisting TC, they now claim they’ve mooted any need for a final court judgment. But that’s not the law,… pic.twitter.com/Je8KD51X0q

— paulgrewal.eth (@iampaulgrewal) March 23, 2025

The Coinbase executive also criticized the Treasury for attempting to avoid court judgment rather than genuinely admitting fault. This mirrors Coinbase’s earlier battles, including its defense during the attempted $1.5 billion supply chain attack, where the platform had to stay vigilant to protect users and infrastructure.

Coinbase Pushes for Final Court Judgment

To protect Tornado Cash and prevent future overreach, Grewal is urging a federal district court to act decisively. He’s calling on the court to approve a motion for partial summary judgment, which would formally declare the original designation of Tornado Cash as unlawful.

This legal move would set a precedent and make it harder for the Treasury—or any future administration—to target open-source privacy tools like Tornado Cash without due process.

Relying on that decision, the Fifth Circuit rejected an agency’s argument that its withdrawal of a determination “unilaterally and avoid judicial review” did not moot the case, because the agency could decide to revisit the decision and issue a similar determination against the…

— paulgrewal.eth (@iampaulgrewal) March 23, 2025

Grewal’s message is clear: crypto protocols need legal protection, not temporary relief. Without a ruling, the government could strike again. This would set a worrying tone for other decentralized platforms, especially those pushing for scalable, secure solutions like Solana or privacy-first protocols.

Push for a clear judicial ruling in the Tornado Cash case. Source: Court filing – Techtoken

Implications for DeFi, Privacy, and Market Trust

The Tornado Cash case isn’t just about one protocol—it’s about the future of crypto privacy and regulatory boundaries. If the Treasury can blacklist a protocol without judicial oversight, it could open the door to more aggressive actions in the DeFi space.

This uncertainty also plays into the wider narrative of how U.S. policy is shaping the crypto market. Just like key U.S. events can influence Bitcoin sentiment, regulatory clarity—or the lack of it—can impact trust in DeFi.

It’s also worth watching how protocols that generate on-chain revenue like Ethereum, with its transaction fee earnings, navigate this evolving legal landscape. If Tornado Cash’s case sets a negative precedent, it could affect the viability of many permissionless, revenue-generating platforms.

As of now, Tornado Cash exists in a legal gray zone. The Treasury may have backed off, but it hasn’t made a legal commitment to stay away. Until the court delivers a ruling, crypto developers, users, and platforms will be watching closely.

The @USTreasury‘s response to the unambiguous mandate of the Fifth Circuit on Tornado Cash has been a study in chaos. It’s time for the district court to do what was ordered months ago. Plaintiffs’ motion for partial summary judgment on Count 1 must be granted, and TC’s… https://t.co/MfkR5eH1Wi

— paulgrewal.eth (@iampaulgrewal) March 24, 2025

This comment captures a growing concern in the industry: that government agencies may sidestep courts to avoid cementing user rights or platform protections. And that’s exactly why Grewal and Coinbase are pushing for a definitive legal outcome.