🌤️ Calm after the Storm

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In a semi-confusing turn of events, the Department of Justice says that it actually won’t be pursuing charges against Dragonfly. 

The DOJ blamed reporting that came from inside the courtroom for the confusion, and Dragonfly’s Haseeb Qureshi said that the DOJ is simply not allowed to “speculate” on prosecuting a third party in an open court setting with media around.

Speaking of court…Ben Strack’s back with an update on the Roman Storm trial this morning.

⚖️ Roman Storm’s defense rests

“Nothing further from the defense,” attorney Brian Klein told Judge Katherine Polk Failla yesterday afternoon at Manhattan’s Thurgood Marshall courthouse.

The team representing Tornado Cash co-founder Roman Storm had cycled through what remained of its witness list, and Storm chose not to take the stand. 

A reminder that Storm is being charged with conspiracy to commit money laundering, conspiracy to commit sanctions violations, and conspiracy to operate an unlicensed money transmitting business.

His defense (and advocates of the privacy protocol) argue Storm isn’t criminally responsible for bad actors using something he helped create. 

Closing arguments were scheduled to begin at 9 a.m. “sharp” Wednesday — meaning in a matter of minutes (if you’re reading this when it publishes). 

In the meantime, let’s go through Tuesday’s witnesses and some of the more memorable moments:

Guy Wuollet, partner at a16z crypto

Tuesday’s first witness, Wuollet had evaluated whether Andreessen Horowitz’s crypto/Web3 unit would invest in Tornado Cash in 2021. 

In an email to Storm at the time, Wuollet wrote he was “impressed by the strength of the privacy” of Tornado Cash and “excited about the next iteration of the protocol.”

The reason a16z didn’t invest? Wuollet said the firm didn’t know if Tornado Cash would be profitable.

“We will continue to be fans of Tornado Cash and to track its adoption onchain,” Wuollet added in the email.  

When asked to acknowledge that crimes are committed on the blockchain, Wuollet paused before saying he thinks of it differently.

“If someone robbed a store, I wouldn’t say the store was used in the crime.”

An attendee sitting to my left started laughing. The prosecution ended the cross-examination there.  

Omid Malekan, Columbia Business School professor

Not on the stand long, Malekan said he used Tornado Cash in 2021 to purchase an Ethereum Name Service (ENS) name. 

He used the protocol because he “didn’t want to put a bullseye on my back.” 

The prosecution’s Ben Arad shouted out an objection. Failla asked Klein to control his witness. 

Dr. Stephanie Hurder, founding economist of Prysm Group 

We found out the defense has so far paid Hurder $120,000 for her time analyzing this case and being an expert witness. She reviewed Tornado Cash DAO proposals, TORN token price data, transactions on Etherscan, etc. 

She countered several points previously brought up by the government about Tornado Cash’s supposed lack of decentralization. Hurder noted the protocol’s DAO was “well-designed and active” (55% of TORN tokens initially went to the DAO treasury) and that Tornado Cash founders did not have (or always use) their voting power on proposals.

She added that the founders did not have a direct hand in selecting entities on Tornado Cash’s relayer registry.

The government’s exchanges with Hurder were heated, with prosecutors getting her to acknowledge that bad actors have apparently used Tornado Cash to hide criminal proceeds. As we know, the case against Storm is more nuanced than that.

Dr. Matthew Green, computer science professor at Johns Hopkins University

Green, who helped create the Zerocash protocol, was brought in to emphasize the value of privacy. 

Though he was intrigued with crypto and blockchain technology essentially from its outset, Green called the lack of privacy (i.e. public transactions) “a huge bug.”

He talked about the value of VPNs and credit-card tokenization in protecting individuals and institutions. At one point, I caught a juror dozing.

The Tornado Cash pools were immutable, Green confirmed — preventing hackers or founders from making changes there.  

During the cross-examination, Arad asked Green whether the Tornado Cash website, user interface and relay registry could be changed. “Yes” to all three.

Also of note was Klein wanting Green to address the feasibility of a hypothetical user registry that one of the government’s witnesses, AnChain.AI’s Philip Werlau, brought up last week. 

Green’s initial hesitation to respond and a subsequent sidebar with the judge meant that the question went unanswered.

But as this case winds down and the jury is charged, we’ll have other, more critical answers soon. 

— Ben Strack

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• The SEC gave ETF issuers the green light to do in-kind creation and redemptions in crypto ETFs.  

• Samourai Wallet co-founders Keonne Rodriguez and William Lonergan Hill want to change their pleas to guilty. 

• World Liberty Financial invested $10 million into DWF-backed Falcon Finance.

Institutional interest in Ethereum is running hot. ETF flows are gaining momentum, new token acquisition vehicles are forming every week, and ecosystem morale is nearing ATHs. 

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