The Ethereum Foundation and Keyring Network have launched a new initiative to pioneer a market-aligned funding mechanism. Fees from zkVerified DeFi vaults will go to support privacy-focused open-source developers.
For the first two months, fees will go to the legal defense funds of the developers of Tornado Cash.
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Institutional DeFi Funds Privacy Defense
The Ethereum Foundation and Keyring Network have devised a funding mechanism for privacy development.
Keyring is a company focused on creating tools that help large financial institutions access compliant decentralized finance (DeFi) products. They specialize in using advanced zero-knowledge proofs to allow users to prove they are verified without revealing their identity on the Ethereum blockchain.
Keyring recently developed zkVerified vaults, which serve as secure, yield-generating DeFi gateways accessible exclusively to safelisted investors.
The joint initiative aims to fund the legal defense of Tornado Cash developers Roman Storm and Alexey Pertsev, championing the defense of privacy-enhancing, open-source code.
Keyring provides direct financial support, pledging two months of all protocol fees generated by its new zkVerified vaults for the developers’ defense. Meanwhile, the Ethereum Foundation is the strategic partner. The Ethereum Foundation will coordinate the effort and establish a successful test case for this new funding model.
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Developers Convicted for Open Source Code
In 2019, Storm, Pertsev, and Roman Semenov created and launched Tornado Cash, an open-source cryptocurrency mixer on the Ethereum blockchain. The service significantly enhances users’ transaction privacy and anonymity.
The stated primary motivation for its creation was to provide financial privacy for cryptocurrency users. Since Ethereum transactions are public, Tornado Cash was created to disconnect the sending and receiving wallets.
Proponents like Vitalik Buterin celebrated the creation, viewing it as vital for financial privacy. However, critics argued that criminals, like sophisticated North Korean hackers, could use it to launder billions in illicit funds.
In August 2022, the US Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash. It also made it illegal for Americans to use the protocol. Pertsev and Storm were subsequently arrested and charged with facilitating money laundering and operating an unlicensed money transmitting business.
Courts convicted both Persev and Storm for these crimes. Roman Semenov remains at large.
An Alarming Standard
The legal cases against the developers of Tornado Cash have resulted in substantial legal fees.
The case is seen by many in the crypto community as setting a dangerous precedent for criminalizing developers for simply writing open-source code.
Beyond this new strategic initiative between the Ethereum Foundation and Keyring, the Foundation pledged an additional $500,000 in donations in August to fund the developers’ legal defense.
This new initiative serves as a key proof of concept for the entire industry. If successful, this new model will establish a sustainable, market-driven funding structure that automatically channels the financial success of privacy protocols, eliminating the need to rely on emergency, one-time community donations for all future legal challenges.