This article is compiled and organized by BlockWeeks
This week, the crypto industry welcomed a rare judicial victory: the U.S. Court of Appeals for the Fifth Circuit ruled that the U.S. Department of the Treasury exceeded its statutory authority when it sanctioned Tornado Cash smart contracts. Meanwhile, President-elect Trump's transition team officially signed the White House agreement to start the transfer of power, and key cabinet and regulatory positions are gradually becoming clear; the Ethereum ecosystem saw the emergence of a decentralized solution attempting to break the block builders' order flow monopoly, BuilderNet; on-chain stablecoin lending rates are also approaching historic highs.
Fifth Circuit Court Overturns Sanctions: Smart Contracts "Cannot Be Owned"
This case was brought by Tornado Cash users against a previous unfavorable ruling by a district court. The Fifth Circuit Court of Appeals ultimately sided with the users, finding that the Treasury Department's Office of Foreign Assets Control (OFAC) exceeded its authority by adding Tornado Cash smart contracts to the "Specially Designated Nationals" (SDN) list—commonly known as the sanctions list.
In the ruling overturning the original judgment and remanding the case to the district court, the judge wrote: "The immutable smart contracts at issue in this case are not property because they cannot be owned." The judge further stated: "In short, regardless of whether OFAC designates Tornado Cash, these immutable smart contracts will continue to operate." The ruling also explicitly stated that, contrary to the Treasury's argument, "immutable smart contracts are not services... even under OFAC's regulatory definitions, these smart contracts are not property because they cannot be owned, are not contracts, and are not services."
This lawsuit was funded and supported by Coinbase. The company's Chief Legal Officer, Paul Grewal, called the ruling a "historic victory for the crypto industry and for all who care about defending freedom." Neeraj Agrawal, communications head at the industry think tank CoinCenter, which also supported the case, said the Fifth Circuit's decision "validated in court" the legal arguments CoinCenter made at the district court stage.
However, this ruling still has limited help for Tornado Cash founder Roman Storm in dealing with charges from the U.S. Department of Justice (DOJ). The Fifth Circuit's decision only addresses OFAC's addition of Tornado Cash smart contracts to the sanctions list and does not involve the charges against Storm—namely whether he conspired with others or facilitated transactions for sanctioned entities through the Tornado Cash frontend. Earlier this month, a New York judge postponed Storm's originally scheduled December trial to April next year.
The Reasoning Matters More Than the Outcome: Drawing a Clear Red Line for Decentralization
This is a major victory for immutable smart contracts at the second-highest level of the federal judicial system. As early as an August 2022 Galaxy Research report, the research team speculated: "OFAC may view Tornado Cash as an 'anonymization service provider' rather than 'anonymization software.'" This is exactly the position the Treasury ultimately took in this case, and exactly the position explicitly rejected by the appellate court judge.
The judge's finding that Tornado Cash smart contracts are not property almost completely blocks OFAC's path to imposing sanctions on them from a statutory perspective, but the reasoning process is equally important and instructive. The court held that smart contracts are not upgradeable and are not controlled by any party, and therefore cannot be sanctioned—this draws a clear red line for the degree of decentralization in DeFi, both protecting and encouraging decentralization.
There is still debate among crypto policy advocates and policymakers about where this red line should be drawn and to what extent upgradeable contracts should be excluded from sanctions authority. But at least one thing is certain: open-source, decentralized, immutable software that cannot be controlled by anyone must be excluded from the scope of sanctions. This not only preserves a viable path for smart contract developers to deploy code without fear that the code itself becomes illegal simply because it could be used by bad actors, but also represents a rational and distinctly American position on freedom of expression in the digital age.
Stepping back, there are not many applications in DeFi that truly fit the characteristics of Tornado Cash. Uniswap may be the closest and most well-known case—its contracts cannot be materially upgraded (let alone used to implement censorship) and cannot be shut down, although UNI holders can indeed vote on and implement the "fee switch" upgrade. But many other smart contracts and cross-chain bridges, as well as L2 sequencers, may also have decentralized forms to which the Fifth Circuit's reasoning could apply.
It is worth noting that the Fifth Circuit's ruling only resolves the issue of OFAC's sanctions authority and does not touch on similar policy questions raised by other agencies. For example, the IRS's Broker Rule similarly asks to what extent decentralized applications should be covered, and the U.S. Securities and Exchange Commission (SEC)'s definition of "exchange" also involves similar disputes. Although the judgment is not binding on these issues, its reasoning could potentially be used by the new administration as a basis for handling related issues uniformly across agencies, thereby building a more durable policy framework.
Trump Transition Team Signs White House Agreement, Transition Officially Begins
President-elect Trump's team announced on Tuesday that it has signed the White House agreement, a key step in transferring control of the federal government to the new administration. White House spokesperson Saloni Sharma also confirmed the news. With the agreement completed, officials from the Trump transition team will soon gain access to federal agencies, and his cabinet nominees will subsequently enter the vetting process, thus beginning the peaceful transfer of power between the two administrations.
What is still missing is the signing of a memorandum of understanding (MOU) with the General Services Administration (GSA). Once signed, this document will provide funding, office space, and technical support for Trump's new government during the transition period. But President-elect Trump has said his transition will be supported by private funds, and the team will use an existing ethics plan instead of the GSA agreement.
On personnel, hedge fund manager and well-known Bitcoin supporter Scott Bessent was nominated last Friday as the Treasury Secretary candidate for the Trump administration; former SEC Chairman Jay Clayton was chosen as U.S. Attorney for the Southern District of New York (SDNY), a key law enforcement position. Former SEC Commissioner Paul Atkins, current Commissioners Mark Uyeda and Hester Peirce, and former SEC General Counsel Bob Stebbins are all seen as potential candidates for SEC Chairman, but no formal announcement has been made.
Bessent's nomination ends one of the most closely watched cabinet selection rounds in recent years. As a successful and well-known hedge fund manager, he is seen by the market as a strong candidate who is Wall Street-friendly and capable of steadily managing the nation's finances, and he is also a supporter of Bitcoin and digital assets. In July this year, he told Fox Business: "Crypto is about freedom, the crypto economy has arrived and will be here for the long term."
Although Robinhood Chief Legal Officer and former SEC Commissioner Dan Gallagher publicly announced his withdrawal from the race for SEC Chairman, the remaining reported candidates—including Paul Atkins, Dan Stebbins, Mark Uyeda, and Hester Peirce—are likely to support a more aggressive regulatory approach to digital assets. Recent reports say the Trump team prefers to have the U.S. Commodity Futures Trading Commission (CFTC) rather than the SEC lead digital asset regulation, but the CFTC's current regulatory authority remains relatively limited.
BuilderNet: Breaking the Order Flow Monopoly with Decentralized Block Building
The Ethereum ecosystem this week welcomed the decentralized block building solution BuilderNet. Currently, exclusive order flow is the biggest barrier to entering the block builder market, so existing vested interests are in theory unwilling to give up this advantage by participating in BuilderNet.
For this reason, the support of Beaver, one of the two largest builders on Ethereum, for BuilderNet is particularly important. This signal indicates that a decentralized block building market is not only beneficial to Ethereum's credible neutrality and censorship resistance, but may also become a pragmatic path for all builders to improve MEV profits by sharing order flow and ultimately sharing block building.
On-Chain Stablecoin Lending Rates Approach Historic Highs, Demand Recovers
Calculated on a seven-day moving average, the composite lending rates and stability fees for on-chain stablecoins are approaching the historic high of 15.4% set in April 2024. Previously, crypto prices experienced seven months of interest rate compression and "choppy consolidation."
On-chain interest rates have historically been reflexive to the crypto market: bull markets push rates higher, while bear markets or sideways trading drive rates lower. The strength of this rate increase is highly synchronized with the aggressive moves in mainstream crypto assets since the U.S. presidential election on November 5—Bitcoin has risen 42% cumulatively, ETH has risen 51%, and Memecoin activity and prices have exploded.
The last time composite stablecoin rates reached such high levels, total borrowing of USDC, USDT, and DAI on Aave and Compound was about $3.3 billion, with a utilization rate of 90%. Now the outstanding borrowing scale of these stablecoins is $4.8 billion, with a utilization rate of about 93.9%. The last time the market saw deposits and outstanding borrowings of this scale was back in May 2022 when the Terra and UST collapse triggered market deleveraging. The recent climb in stablecoin lending activity is a positive signal of recovering demand in the on-chain market.
Other Developments This Week
"Fake Satoshi" Craig Wright's appeal in the Bitcoin creator identity case was rejected by the court; Vitalik Buterin donated $1 million to CoinCenter following the Tornado Cash ruling; Phantom wallet added support for the Base blockchain; Ripple donated another $25 million to the pro-crypto super PAC Fairshake; MicroStrategy completed the largest Bitcoin purchase in history, adding $5.4 billion worth; Tether shut down the euro stablecoin EURT; Deutsche Bank invested in the blockchain payment network Partior; Trump's crypto project received a $30 million investment from Justin Sun.
