Does OFAC apply to DeFi protocols?

Yes. The August 2022 Tornado Cash designation definitively established that decentralized finance is not exempt from OFAC sanctions. The protocol's smart contracts were designated as blocked property, and US persons are prohibited from interacting with them.

What the Tornado Cash precedent means

OFAC designated the protocol itself — not a specific entity, but the smart contract addresses and the protocol as a whole. This means interacting with designated DeFi protocols' smart contracts can trigger sanctions liability even without a human counterparty.

Risk mitigation for DeFi

Screen wallet addresses before interacting with any contract. If a DeFi protocol is designated, do not interact with its contracts. If a wallet address interacting with your protocol is sanctioned, blocking at the front-end or contract level may be required depending on your jurisdiction and control over the interface.