The Fifth Circuit Court's ruling on Tornado Cash on Wednesday has triggered widespread optimism, with decentralized protocols on Ethereum and privacy-focused tokens seeing significant gains.

On Tuesday, the court found that immutable smart contracts aren't property and can't be sanctioned under existing laws, signaling what some observers claim as a major win for privacy advocates.

"While the ruling does not endorse money laundering, it establishes a precedent allowing programmers to develop and release smart contract protocols without fear of sanction, provided they do not charge fees," 10X Research said in a note to investors on Wednesday.

The move could also provide developers with more clarity about what they can build without falling into the regulatory crosshairs, particularly on Ethereum, which plays host to the majority of decentralized applications.

"Privacy won. Smart contracts won. Tornado Cash won. And OFAC lost," Balaji Srinivasan, Coinbase's former CTO and prominent crypto entrepreneur, said Wednesday on X, formerly Twitter.

Crypto markets immediately took inspiration from the news: TORN, Tornado Cash's native token, surged over 380% early Thursday. 

While privacy coins as a category have since tapered off to less than 2% in total gains over the past 24 hours, decentralized finance's market cap has jumped 8.2% and a further 21.5% on the week, data from CoinGecko shows.

Among the largest gainers is Uniswap (UNI), up 11% on the day to an eight-month high just above $12.50. Aave (AAVE) and Ethena (ENA) have also hit their strides, up 8.6% and 23%, reaching their highest point in 2.5 years and five months, respectively.

"As Ethereum remains the leading blockchain for DeFi, this decision is viewed positively for the broader DeFi ecosystem and other protocols, particularly on the Ethereum network. This could have enormous implications," 10X Research wrote.

Meanwhile, Alexey Pertsev, the Tornado Cash developer found guilty by a Dutch court in May over a money laundering case, remains behind bars.

"I am sad to announce that, despite our best efforts, the court decided to prolong my pre-trial detention,” Pertsev said on Twitter last week. “This decision significantly complicates my ability to prepare for the appeal, but I remain determined to continue fighting for justice."

Edited by Sebastian Sinclair