Crypto Legal Battles Intensify Amid DeFi, DAOs, and Cyber Threats

The legal and ethical complexities of decentralized finance (DF) took center stage in recent discussions, particularly in the context of the U.S. Department of Justice’s (DOJ) case against Roman Storm, a developer linked to the Tornado Cash protocol. Storm dismissed his conviction on money transmission charges as “bullshit” and expressed confidence in an appeal, a position supported by Peter Van Valkenburgh, who argues that the case hinges on whether money laundering can occur without control of the funds. Tornado Cash, a non-custodial mixer, never controls users’ money, raising questions about its legal liability [1].

JP Konig warned that if courts side with Storm, the precedent could lead to the “decriminalization of crypto money laundering.” He reasoned that if smart contracts are legally exempt from liability in transmitting funds, financial institutions may shift their operations to crypto-based systems to exploit the loophole. With global banks spending over $200 billion annually on financial crime compliance, the incentive to adopt crypto infrastructure is substantial. If this shift becomes widespread, Konig suggested, laundering money could become legally unprosecutable [1].

This debate has broader implications beyond the banking sector. Henry Farrell and Bruce Schneider expanded the discussion to include DAOs, describing them as “golems” — autonomous entities that follow instructions blindly and resist external control. If the law permits such structures, they warned, criminals might use DAOs to facilitate illegal activities with no accountability. Farrell and Schneider further speculated that if DAOs are above the law, autonomous robots governed by similar principles could face similar legal immunities. The convergence of autonomous systems and unregulated crypto infrastructure could lead to unprecedented legal and security challenges [1].

Meanwhile, a report by Google highlighted the growing threat of state-sponsored social engineering attacks targeting the crypto industry. Attackers, such as the North Korean group UNC4899, infiltrate corporate cloud systems by impersonating developers and inserting malicious code into cryptocurrency functions. These attacks are particularly effective in the crypto space because funds are stored in digital wallets rather than traditional spreadsheets, making them easier to manipulate and steal. According to the report, $1.6 billion in cryptocurrency has been stolen through such means this year [1].

The rise of these threats has fueled debates about whether banks should have the right to refuse service to certain clients. Legal scholar Peter Conti-Brown defended banks accused of “debanking” high-risk clients, including Donald Trump, arguing that banks are simply practicing risk management. He emphasized that the U.S. financial system includes over 9,000 depository institutions, many of which are willing to take on risks that others avoid. While critics like Nic Carter argue that debanking is politically motivated, Conti-Brown framed it as a natural function of the free market. He also cautioned against overregulation, warning that mandating banks to serve all customers could represent an overreach of state power — a stance that contrasts sharply with crypto’s libertarian ethos [1].

In conclusion, the legal and regulatory landscape of crypto continues to evolve rapidly. From DAOs and smart contracts to cyber threats and banking policies, the sector is grappling with unprecedented challenges. Whether the courts decide in favor of defendants like Storm or reinforce existing financial regulations, the implications for global finance could be profound. As the technology advances, so too must the legal frameworks that govern it, ensuring that innovation does not come at the cost of accountability or security.

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[1] Title: Thursday mailbag: Financial Frankensteins?

Url: https://blockworks.co/news/thursday-mailbag-financial-frankensteins