On Thursday, Tether, the company behind the world's largest stablecoin, announced that it has frozen $344 million worth of USDT tokens in two wallets on the Tron blockchain, acting on requests from US authorities. The freeze was implemented after the addresses were flagged for alleged ties to illicit activities, effectively preventing any further movement of the funds.

The nature of the activities and the controllers of the wallets were not disclosed by the company. However, according to blockchain analytics firm AMLbot, the addresses were linked to scam-related documents and posts. This move comes at a time when the role of stablecoin issuers in preventing the transfer of funds linked to illegal activities is under scrutiny.

The Financial Action Task Force has recently warned about the increasing use of stablecoins for illicit transactions, including sanctions evasion and money laundering. While public blockchains allow transactions to be traced, issuers have the ability to freeze assets under specific conditions. The issue gained attention earlier this month after 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 minimize losses, while the company stated that it only takes such actions when legally required or at the request of law enforcement and authorities. Tether claims to collaborate with law enforcement when wallets are linked to sanctions evasion or criminal networks, having 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 complies with federal stablecoin regulations, in partnership with Anchorage Digital, a federally regulated crypto bank, with the effort being led by former White House crypto advisor Bo Hines. Furthermore, Tether is preparing for its first full audit of reserves, a long-promised step towards improving transparency and aligning with regulatory expectations for stablecoins.

An update on April 23 added context about Tether's US expansion.