On the 10th of August, the dYdX, a layer-two DEX on Ethereum, apologized to its community members for unexpected restrictions in its ecosystem. The protocol revealed that the recent ban on Tornado cash has also indirectly affected the operation of dYdX.
Some wallet addresses were blocked from accessing the exchange. Following the sanction imposed on Tornado Cash by the US Treasury’s OFAC, several wallet addresses associated with the protocol were flagged.
On its official blog, dYdX revealed that it utilizes compliance vendors to wallet addresses with a bad reputation. Some activities that could imprint a bad label on an address include promoting ransomware, malware, child sex abuse material, or even terrorism.
More recently, the clamp down on Tornado cash users caused dYdX compliance providers to flag wallets that received transactions from the privacy protocol.
The protocol also acknowledged that it received complaints from wallet users who had no dealings with Tornado cash. While some users had not traded Tornado cash, they had unknowingly received funds from traders who had used Tornado cash, and these wallets were also flagged.
The protocol reassured its community members that they were working hard to resolve the issue, and the restrictions imposed on the wallets of some users have been removed.
This obnoxious situation has stirred negative emotions in the minds of many DeFi community members. The role of the protocol in the Defi space has been called into question, and dYdX is gradually losing its trust as a decentralized protocol.
Amidst the saga, dYdX assured its community members that it has no control of users’ funds. The protocol claimed it could not seize users’ assets. Although, the protocol has the right to put users’ funds in close-only mode on its matching engine. dYdX further stated that all customers can always deposit and withdraw while maintaining custody of their funds.