Decentralizing TornadoCash: The Launch of Tornado Fund and the Path Towards TornadoDAO
Today we are announcing the launch of Tornado Fund, a DAO to invest in Tornado Cash and help it develop into the first, fully decentralized privacy-preserving technology for Ethereum.
With the rise of the internet, information and financial transactions are becoming increasingly connected — this data is often cataloged, duplicated, shared, and sold, maintaining our expected levels of privacy can be a challenge. Many of us see the value of having private financial transactions on-chain. At a high-level, privacy enables us to create boundaries and protect ourselves from unwarranted interference in our lives, allowing us to negotiate who we are and how we want to interact with those around us.
Financial freedom — transacting with the need of a middle party — is tied to financial privacy. Outside of the moral justification, our financial privacy is critical for practical reasons as well. We want our transactions to not be viewable to possible criminal third parties, better positions for companies and private individuals that may be in negotiations, contamination that could lead to blacklists, and lastly, but also very importantly, protecting ourselves from financial censorship and prohibition.
Blockchain has some fundamental privacy problems by virtue of the design. On Ethereum, and other blockchains that are publicly available, every transaction can be traced back on a blockchain to the first genesis block. Bitcoin and Ethereum are colloquially known to be “pseudonymous,” which means that the transaction addresses, or data points, are not directly associated with a specific individual, however where multiple points can be linked. This results in the transactions and funds being publicly viewable on block explorers, like Etherscan, enabling anyone to uncover your assets, view your payments, trace the source of your funds, calculate your holdings, and analyze your on-chain activity.
Over the years there have been attempts to create private transactions on Ethereum. For example, users have tried to maintain their financial privacy by obscuring value flows through a centralized exchange. Others restored to using custodial mixing services that created regulatory concerns and risks. These techniques, however, never achieved full privacy due to security concerns or, in the case of a centralized exchange, the disclosure of personally identifiable information.
Tornado Cash addresses these critical blind spots. Tornado Cash is a privacy-preserving technology that uses zero-knowledge proofs which completely breaks the link between the sender and recipient. Unlike other privacy-preserving technologies which “spam” additional transactions in between sender and receiver, Tornado Cash puts user funds within a smart contract in a black-box environment, which isn’t visible on-chain. Moreover, Tornado Cash is a decentralized service — run by a smart contract with no centralized third party taking custody or control of funds during the process.
Of equal importance, Tornado Cash has implemented compliance tools that enable users of Tornado Cash to prove the source of their funds (if the need arises). That means that individuals can prove legitimate, lawful uses of Tornado Cash, if requested by regulators.
Not surprisingly, Tornado Cash has generated a tremendous amount of support in the Ethereum ecosystem from members that value and deem privacy essential to scale the technology is a credible, safe, and lawful way. In early May, Tornado Cash conducted a cryptographic process where over 1,100 participants contributed to the largest Trusted Ceremony Setup to date.
Tornado Cash can fully bring to life this vision of financial freedom, privacy included.
Introducing Tornado Fund
The Trusted Ceremony was the first step in making the Tornado Cash protocol trustless, decentralized, and unstoppable. While much of the protocol has been successfully decentralized (including the UX), there is still more to do for the privacy-preserving technology. In order to push this vision forward, the Tornado Cash team, in conjunction with OpenLaw (the project behind The LAO), is creating Tornado Fund, which will be launched in mid-July.
The Tornado Fund is just the first phase in Tornado Cash’s evolution towards a fully decentralized protocol. The Tornado Fund will be used specifically to fund the software developers behind Tornado Cash (PepperSec, Inc.) so that they can develop version 3 of the Tornado Cash Protocol. Funding will be used to pay for software development and other operational costs.
The fruits of this effort will be the launch of version 3 of Tornado Cash. Tornado Cash currently does not have a token, and Version 3 may introduce (although there are no guarantees) a protocol level token to govern aspects of the Tornado Cash network.
If Version 3 of Tornado Cash includes a token, its will be accompanied by the creation of a community-owned and operated TornadoDAO — an evolution of the TornadoFund — which will serve a locus for Tornado Cash governance, potentially hold ether, and continue to direct the future of the Tornado Cash protocol.
Under this scenario, the Tornado Fund (a proto-DAO) will evolve into a fully decentralized DAO that helps ensure that protocol developers and other early supporters of the protocol can continue to fuel network development without centralized control. The entire network and protocol will be decentralized and entirely community-driven. The future of Tornado Cash will be in the Ethereum community’s hands.
The Structure of Tornado Fund
The Tornado Fund will be organized as a limited liability legal entity in Delaware (Tornado DAO, LLC), using the Moloch v2 smart contracts to handle mechanics related to pooling and deployment of an investment in the Tornado Cash team. All of the relevant legal documents from the entity formation documents to member subscription agreements will be generated automatically at contribution. In order to comply with United States law, membership interests of the Tornado Fund will be limited and only available to parties that meet the definition of an accredited investor. OpenLaw will serve as the service provider to the DAO and perform the accreditation checks, legal paperwork, servicing the DApp, etc.
Prospective members can purchase units in Tornado Fund (1% interest) in exchange for 30 eth. There will be up to 100 members of Tornado Fund making the total amount collected in Tornado Fund 3,000 eth (or about $700,000 USD). All proceeds raised by the Tornado Fund will be used to fund the Tornado Cash team and the investment will be structured as a convertible note, with a right to receive a proportional amount of any tokens reserved by the Tornado Cash team, if the member of TornadoDAO determine that those tokens are not securities.
Joining the Tornado Fund
If you’re interested in becoming a member of the Tornado Fund, you can pre-register here. This will give you a leg up when the Fund launches in mid-July.
(Note: OpenLaw’s role in the creation and maintenance of the Tornado Fund will be that of an administrator. OpenLaw will exercise no control over Tornado Fund, unless directed by the members. For these services, OpenLaw will receive a fee for its role in creating and maintaining the software necessary. The fee will be used to pay for ongoing software development and other costs necessary to set up and maintain the OpenLaw protocol. The Tornado Fund is a proto-DAO and will have no general partner.)
Learn More
To learn more about Tornado Fund, sign-up and continue the conversation on our Telegram and follow us on our Twitter. If you’d like to check out our documentation and FAQs, please do so here. Reach out with any questions at hello@tornadofund.io. We look forward to having you join the community!
