Tornado Cash, Dragonfly Warn of Negative Impact on US Cryptocurrencies

The US Department of Justice is considering prosecuting Dragonfly for its investment in Tornado Cash, marking an unprecedented move in the cryptocurrency investment industry.

The case not only directly impacts Dragonfly but also makes cryptocurrency investors anxious about legal risks when supporting privacy protection technology.

What is Dragonfly?

Dragonfly is one of the top Venture Capital funds focusing on the cryptocurrency field, with a diverse investment portfolio in Blockchain, DeFi, and Web3 technology projects globally.

Dragonfly has become a major shareholder in dozens of prominent cryptocurrency projects through its platform technology investment strategy.

Professional assessment from TinTucBitcoin, 2025

Founded in 2018, Dragonfly quickly rose to prominence through major investments in projects like Avalanche, Near, Lido, MakerDAO, Starkware. The fund focuses on innovative solutions for security, scalability, and privacy, affirming its pioneering role in developing the global Blockchain ecosystem.

Currently, Dragonfly manages an investment portfolio worth hundreds of millions of USD, gathering experienced international experts and entrepreneurs under the leadership of Haseeb Qureshi. The Dragonfly team prioritizes transparency, technological analysis expertise, and sustainable investment strategies.

What is the Event of the US Department of Justice Investigating Dragonfly Related to Tornado Cash?

The US Department of Justice (DoJ) is considering criminal prosecution of Dragonfly for its 2020 investment in Tornado Cash – an Ethereum transaction mixer protocol that helps secure transactions.

According to Haseeb Qureshi, Managing Partner of Dragonfly, the DoJ is examining potential charges against the investment fund for supporting Capital for Tornado Cash – an entity accused of money laundering activities. This is the first time in history that the possibility of penalizing a cryptocurrency investment fund has been raised.

Previously, the DoJ had only targeted founders, development teams, or platform users accused of criminal activities, such as CZ (Binance), Sam Bankman-Fried (FTX), Roman Storm (Tornado Cash). If action is taken against Dragonfly, the DoJ would create an unprecedented precedent: prosecuting investors instead of just operators.

Overview of Tornado Cash and Legal Controversies

Tornado Cash is a decentralized mixer on the Ethereum platform that helps users hide transaction origins and protect privacy.

Tornado Cash provides a real security solution for Blockchain, however, there is also a risk of being exploited by bad actors for money laundering.

Comment from Blockchain security expert, Chainalysis, 2023

Launched in 2019, Tornado Cash quickly became one of the important platforms for transaction security. However, since 2022, the platform has been continuously accused of supporting North Korean hackers in laundering hundreds of millions of dollars through cryptocurrency.

In August 2022, the US Treasury added Tornado Cash to the sanctions list, blocking all related financial activities. However, since March 2025 when President Donald Trump took office, the ban was lifted, although developers remain under investigation. The case has sparked global debate about the boundary between security technology and legal responsibility.

Why is the US Department of Justice's Investigation of Dragonfly an Unprecedented Move?

The DoJ's consideration of prosecuting Dragonfly shows that the US government is expanding its supervision to include investment entities, not just developers or platform users accused of legal violations.

We are confident in the legality of our investment. If the DoJ still decides to prosecute, Dragonfly will resolutely defend itself against any unreasonable and unfounded accusations.

Haseeb Qureshi, Managing Partner of Dragonfly, July 26, 2025, TinTucBitcoin

According to Haseeb Qureshi's sharing, Dragonfly invested in Peppersec, the organization developing Tornado Cash, with the belief that all processes comply with the law. Even when requested by the DoJ to assist in the investigation in 2023, the fund was confirmed as not being under investigation. However, the situation changed quickly, raising deep concerns in the industry.

There has never been a case where the US government attempted to criminally prosecute an investment fund for financially supporting a cryptocurrency technology startup. This opens up a dangerous legal precedent for domestic and international investors.

Community and Expert Reactions to the Potential Prosecution of Dragonfly

The DoJ's move immediately faced strong opposition from investors, experts, major funds, and global privacy advocacy organizations.

Prosecuting investments in privacy protection technology is no different from stifling innovation. Investing in this field is not a crime.

Balaji Srinivasan – Veteran Cryptocurrency Investor, 2025, X source

Matt Huang, co-founder of Paradigm, noted that punishing funds supporting developers is "irrational" and further elevates technology innovation risks. Meanwhile, Jake Chervinsky, a DeFi legal expert, sees this as an existential threat to global Blockchain security technology.

Source code is not a crime. The law should create space for innovation, not stifle it.

Matt Huang, CEO Paradigm, 2025, X source

Most experts agree: if the government prosecutes Dragonfly, all investments in privacy protection projects will face enormous legal risks, threatening capital and development speed of the entire industry.

Potential Impact on the Cryptocurrency Investment Industry

If the US Department of Justice truly pursues criminal liability against Dragonfly, this will create a strong precedent with serious implications for Capital investment in new technologies in the US and globally.

Any punitive action will make investors wary, directly choking innovative tech startups in the cryptocurrency field.

Messari Research Analysis on Cryptocurrency Policy Impact in the US, 2025

Domestic and foreign investors are worried about potential prosecution just for financially supporting innovative technology, leading to a "freezing" of Capital. Especially, startups specializing in privacy, security, and decentralized technologies will find it increasingly difficult to access Venture Capital, affecting the US's leading position in the Blockchain innovation environment.

In fact, after the US government's strong measures against cryptocurrency projects since 2021, the investment rate in Blockchain startups in the US decreased by 24% in 2023 compared to the same period in 2022 (according to CB Insights report). The tightened legal landscape is causing funds, entrepreneurs, and startups to tend to move to Europe and Asia – regions with more open policies towards innovation.

Is This a Turning Point for Technology Investment in the US?

The potential prosecution of Dragonfly is creating a turning point that will determine the future of the cryptocurrency technology investment environment in the US.

If the DoJ succeeds, all investment funds will have to conduct strict legal due diligence or avoid security and privacy technology projects. This goes against the industry development perspective that the US once affirmed – being the center of Web3 innovation with a diverse startup ecosystem worth hundreds of billions of dollars.

Many voices are calling for the government to clearly distinguish between technology support and money laundering accomplices. Jake Chervinsky, advisor to Fight for the Future, comments: "By expanding the concept of criminality to include investment, the US will fall behind in the global technology race".

Legal Trend Forecast for Blockchain Field After Dragonfly?

Countries will more strictly control security projects, increase legal transparency requirements; capital flows may shift to Europe or Asia to avoid risks.