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DeFi and Credit Risk

US officials are launching a broader sanctions campaign in response to purported North Korean cryptocurrency wallets.

The Treasury Department's Office of Foreign Asset Control (OFAC) added three Ethereum addresses to its sanctions list on Friday, including one listed last week that the federal government linked to the theft of around $600 million in cryptocurrency from Axie Infinity's Ronin bridge. Over the previous week, all three addresses have received significant inbound transfers of stolen ether (ETH) from the originally sanctioned wallet.

The operators of the Ronin exploit wallet, identified as North Korea's Lazarus hacking group by the FBI and OFAC, have been laundering funds by moving them from a sanctioned address to an intermediary address before sending the funds to Tornado Cash, a mixer designed to conceal the source and destination of funds moved through the service.

This sequence was repeated on Friday, when monies were transferred from one of the newly sanctioned addresses to another intermediary before landing at Tornado Cash once more.

Tornado Cash has not communicated with any of the sanctioned addresses.

The structure of Tornado Cash makes it difficult for the service's operators to blacklist addresses, as OFAC mandates of any entity dealing with the US banking system. The mixer used a compliance tool provided by blockchain analytics firm Chainalysis that allows it to blacklist specific addresses, but only on the user-facing decentralized software that Tornado Cash's operators have control over. Individuals can still circumvent this compliance tool by using the protocol itself.

Also, as of last week, the Chainalysis tool only displayed the initial sanctioned address.

"OFAC is the arbiter of what addresses need to be blocked," a Tornado Cash spokesperson previously told CoinDesk.

"So far, it's all a guessing game. I assume that OFAC has identified only one address that should be sanctioned in connection with that event. That is, Chainalysis updates whatever is on the sanction's list "said the spokesperson.

Officials have accused the Hermit Kingdom of going on a hacking rampage against the cryptocurrency industry.