Tether, the company behind the world's largest stablecoin, announced on Thursday that it has restricted $344 million worth of USDT tokens across two wallets on the Tron blockchain, following requests from US authorities. The restriction was implemented after the authorities flagged the addresses for alleged connections to illicit activities, as stated in the company's blog post on Thursday, effectively preventing any further movement of the funds. The nature of the activity and the controllers of the wallets were not specified by the company.
However, according to AMLbot, a blockchain analytics firm, the addresses appeared in documents and posts related to scams. This move comes as the debate surrounding the role of stablecoin issuers in preventing the transfer of funds linked to illegal activities is once again under scrutiny. The Financial Action Task Force recently issued a warning that stablecoins are increasingly being used for illicit transactions, including the evasion of sanctions and money laundering.
Public blockchains allow transactions to be traced, and issuers have the ability to freeze assets under certain conditions. This issue gained attention earlier this month following the $285 million exploit of Drift Protocol, where attackers transferred hundreds of millions of USDC stablecoins and bridged funds across chains. Critics argued that Circle, the issuer of USDC, could have acted faster to freeze assets and limit losses, while the company stated that it only takes such actions when legally required or at the request of law enforcement and authorities.
Tether stated that it collaborates with law enforcement when wallets are linked to sanctions evasion or criminal networks and has supported over 2,300 cases globally across 340 agencies in 65 countries. The company is also expanding its presence in the US market, having launched the USAT token, which is compliant with federal stablecoin regulations, in partnership with federally regulated crypto bank Anchorage Digital, led by former White House crypto advisor Bo Hines.
Additionally, Tether is preparing for a full audit of its reserves for the first time, a long-promised step towards improving transparency and aligning more closely with regulatory expectations for stablecoins.