On Thursday, Tether, the company behind the world's largest stablecoin, announced that it had frozen $344 million worth of USDT tokens in two wallets on the Tron blockchain, acting on requests from US authorities. The decision to freeze the funds was made after the addresses were flagged for suspected links to illicit activities, thereby preventing any further movement of the funds. The nature of the activities and the identities of those controlling the wallets were not disclosed by the company.
However, according to AMLbot, a blockchain analytics firm, the addresses were mentioned in documents and posts related to scams. 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. Recently, the Financial Action Task Force warned about the growing use of stablecoins for illicit transactions, including evading sanctions and money laundering. Public blockchains allow transactions to be traced, and under certain conditions, issuers can freeze assets.
This issue gained attention earlier this month after the $285 million exploit of Drift Protocol, where attackers moved large amounts of USDC stablecoin 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 it only takes such actions when legally required or at the request of law enforcement. Tether stated that it collaborates with law enforcement in cases where 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 into 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 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 meeting regulatory expectations for stablecoins.