A new initiative launched by the Ethereum Foundation and Keyring Network aims to establish a market-aligned funding mechanism. Fees from zkVerified DeFi vaults will support developers focused on privacy in open-source projects.
For the initial two months, fees will contribute to the legal defense funds for the developers of Tornado Cash.
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Institutional DeFi Funds Privacy Defense
A funding mechanism for privacy development has been devised by the Ethereum Foundation and Keyring Network.
Keyring specializes in creating tools that enable large financial institutions to access compliant decentralized finance (DeFi) products. They focus on using advanced zero-knowledge proofs, allowing users to verify their identity without disclosing it on the Ethereum blockchain.
Recently, Keyring introduced zkVerified vaults, which function as secure, yield-generating DeFi gateways exclusively available to approved investors.
This collaborative effort aims to support the legal defense of Tornado Cash developers Roman Storm and Alexey Pertsev, advocating for the protection of privacy-enhancing, open-source code.
Keyring has pledged to provide direct financial assistance, dedicating two months of all protocol fees derived from its new zkVerified vaults for the developers’ defense. Concurrently, the Ethereum Foundation will act as a strategic partner, coordinating efforts and establishing a successful case study for this innovative funding model.
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Developers Convicted for Open Source Code
In 2019, Storm, Pertsev, and Roman Semenov established Tornado Cash, an open-source cryptocurrency mixer on the Ethereum blockchain that profoundly enhances transaction privacy and anonymity.
The main purpose of its creation was to grant financial privacy to cryptocurrency users, as Ethereum transactions are public. Tornado Cash was developed to sever the link between sending and receiving wallets.
Supporters like Vitalik Buterin praised its inception as essential for financial privacy, while critics contended that it could be exploited by criminals, including advanced North Korean hackers, for laundering billions in illicit funds.
In August 2022, the US Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, prohibiting Americans from using the protocol. Following this, Pertsev and Storm were arrested and charged with facilitating money laundering and operating an unlicensed money transmitting business.
Both Pertsev and Storm were convicted by the courts. Roman Semenov remains at large.
An Alarming Standard
The legal battles against the Tornado Cash developers have led to significant legal expenses.
Many in the crypto community perceive this case as a troubling precedent, criminalizing developers merely for creating open-source code.
Aside from this new strategic collaboration between the Ethereum Foundation and Keyring, the Foundation also committed an additional $500,000 in August to support the developers’ legal defense.
This initiative represents a critical proof of concept for the entire industry. If successful, it will create a sustainable, market-driven funding structure that channels the financial success of privacy protocols, thus reducing reliance on emergency, one-time community donations for future legal battles.
