What Will Happen to THORChain, Named by the FBI but Refusing to Initiate a Review?

From Tornado Cash to THORChain, a critical moment for permissionless finance.

Written by: Joel Valenzuela

Compiled by: AididiaoJP, Foresight News

The FBI has officially called on THORChain node operators to assist in reviewing transactions related to the recent Binance theft. The government is publicly pressuring decentralized protocols to review transactions; this era has arrived. For permissionless finance, the current moment is the last window of opportunity.

Let me clarify: the following discussion is from an academic perspective. However, behind the protocol are real people, and those people could face jail time. I do not encourage anyone to risk their safety and freedom; first and foremost, take care of yourself and your family.

Should DEXs Bear the Blame for Hackers?

The issue began when hackers stole funds and then used DEXs to exchange them for assets they preferred. These hackers are particularly attributed to North Korea.

However, DEXs neither participated in the theft nor in the transfer of funds. The problem lies with the poor security practices of CEXs, the negligence of law enforcement and government, and the underlying blockchain itself. It makes no sense to point fingers at DEXs.

Some have been blunt: if what you are doing is merely "trust me," then when something goes wrong, you can only accept the consequences; either truly decentralize or get out of this industry.

The Line: To Review or Not to Review

Currently, almost all cross-chain DEXs have taken measures to prevent the trading of stolen funds, with NEAR Intents and Chainflip being prime examples. THORChain and its associated DEX, Maya Protocol, have not done so.

They are among the last protocols resisting the industry consensus that "transaction review is necessary and acceptable"; this is the dividing line.

If this line cannot be maintained, we may have to accept a reality: permissionless currency can be realized, but accessing it without controlled channels will be very difficult. The freedom of free currency is thus severely limited.

Industry pressure has not made THORChain and Maya back down; now the government has stepped in directly. While it cannot be guaranteed that action will definitely occur, it is reasonable to speculate that law enforcement actions are not far off: websites and GitHub could be taken down, hosting could be canceled, and node operators could be arrested.

The Precedent of Tornado Cash

There is a ready example: Tornado Cash.

It is a smart contract on Ethereum that provides privacy for users. The contract and addresses have been sanctioned, developers have been arrested, but the contract is immutable, continues to run, and people keep using it.

If THORChain were attacked, the outcome could be similar, but there are several differences.

Tornado operates an actual interface; THORChain's founders have explicitly avoided operating a user swap site, practicing "decentralization," so the defense of "we only write open-source code" is stronger. However, recently THORChain deployed its own swap interface, complicating matters. I do not know how separated it is from the code developers, but once there is a court case, these facts will be very important.

Tornado has no nodes to shut down; THORChain has nodes. It can be stopped without breaching Bitcoin or Ethereum.

The 10% Rule: No Need to Collapse, a Blacklist is Enough

I interviewed Alex Shevchenko from NEAR Intents about DEX transaction reviews. A key judgment is the "10% rule": the protocol's survival and legality depend on the ratio of legal to illegal activities.

If 90% of THORChain's transaction volume is legal and 10% comes from hackers and theft, it can still thrive. But if the ratio tips towards illegal and criminal transactions, it becomes susceptible to economic blockades, blacklisting, and turning into a "criminal enterprise."

If THORChain becomes an isolated island, legitimate users will be afraid to use it; even if the network is still running, it has essentially failed. Users will weigh: using NEAR Intents, where swaps might be flagged and frozen by SHIELD; or using THORChain, where swaps can succeed, but funds are tainted and can never be used. Which risk is greater?

Thus, the FBI does not need to completely destroy the THORChain network. Just blacklisting it could lead to its self-destruction.

Is THORChain Ready?

With the government at the gates, can THORChain withstand the world's strongest government?

Short answer: I don’t know. It might be able to, or it might not. At this moment, I feel uneasy for two major reasons.

First, the project is small, with few nodes. Bitcoin, Ethereum, and Solana, perhaps including Dash, Monero, Zcash, BCH, and LTC, have enough scale to remain online under government attack. THORChain has fewer than 120 nodes, lacking the long-term pressure resistance records of these projects, and has recently faced a survival crisis. A project with a scale of about $200 million facing maximum pressure is already difficult; moreover, the DEX space is highly competitive, with NEAR Intents holding an even larger market share.

Second, it cannot maintain stable online presence. THORChain frequently goes down. Downtime is downtime, regardless of whether it comes from government scrutiny or pure engineering challenges. The FBI may not need to intervene; the network may never have been stable enough to pose a threat.

Worse still, downtime will increase the proportion of criminal funds. Legitimate users may leave when the network goes down and may not return; illegal users have nowhere else to go. Over time, THORChain's transaction volume will increasingly rely on criminal funds.

My judgment is: if THORChain truly fails, it is more likely to fail due to downtime rather than scrutiny.

If THORChain Falls

Complete disaster? It would be much harder, but not necessarily a total loss.

Maya Protocol remains. Its structural limitations are similar, but its team is less vulnerable to attacks: not based in the U.S., and with fewer formal legal structures. If THORChain cannot continue, I suspect Maya will carry on, and a significant portion of the THORChain community will shift there, concentrating development efforts.

The strongest way to resist scrutiny is for traders and liquidity to be completely peer-to-peer. THORChain, however, is a complex automated system: it concentrates liquidity and processes transactions as needed, making it an obvious target for scrutiny. If traders and liquidity are spread across a peer-to-peer network, it becomes much simpler for the system to continue operating—taking down every individual trader globally is not realistic.

Atomic swap DEXs embody this structure and have significantly stronger resistance to scrutiny. However, their user experience is too poor, and they have never achieved sufficient transaction volume to pose a real threat to any party.

A more ideal solution would be to create a peer-to-peer matching system based on "intents." The so-called intents mean users only express "what they want to swap," and the system finds matching counterparties, rather than users having to place orders to find trading partners. The key is that this system matches direct trades between ordinary traders, rather than just pairing users with vetted market makers like NEAR Intents. If this system is executed well enough, it could be the most resistant path to scrutiny currently available.

The reason is that it does not require a unified liquidity pool. THORChain is prominent because all liquidity is pooled in one system; taking it down is sufficient. Peer-to-peer matching lacks this central target. Moreover, individuals from different jurisdictions can choose for themselves: those in heavily regulated areas can opt not to touch tainted funds, while those with stronger anonymity and security practices in more favorable jurisdictions can continue trading. If no one is working on this system yet, someone should.

We have already proven that decentralized currency can be unreviewable; we have also proven that it can be used privately. Now, it is time for the trading aspect itself to face scrutiny pressure.

Do we have the resolve to push through?