Analysis

Prior to the sanctions on August 4th, 2022, Tornado Cash's activity on the Polygon blockchain was modest. However, even this relatively low level of activity experienced a sharp contraction following the sanctions announcement, as demonstrated by the precipitous drop to near-zero levels in our graphs. This immediate plunge reflects the extent to which the regulatory measures impacted the use of Tornado Cash on Polygon. Whether due to heightened risk aversion or legal considerations, users markedly reduced their engagement with the protocol, leading to a significant decrease in both the number of transactions and the volume of tokens transferred. Since the sanctions, the Tornado Cash protocol on Polygon has seen only sporadic transfers of tokens. These transactions are not just infrequent but also dispersed over time, as depicted by the sparse data points on our graphs. This sporadic activity indicates that Tornado Cash is seeing marginal usage on the Polygon network, a far cry from its intended role as a widely used privacy solution. One of the most significant impacts of this sharp reduction in user activity is the decrease in the anonymity set. Tornado Cash relies on a large and active user base to effectively obscure individual transactions and ensure privacy. The sparse usage of Tornado Cash on Polygon has severely compromised this privacy feature, given the limited number of users and transactions to blend in with. In summary, the sanctions have had a profound impact on Tornado Cash's operations on the Polygon network. The substantial reduction in activity, coupled with the ensuing decrease in the anonymity set, has made the protocol's privacy feature largely ineffective on this blockchain. This analysis underlines the significant influence of regulatory interventions on blockchain protocols and their respective ecosystems.

Tornado Cash Activity Since the Sanctions