On Thursday, Tether, the company behind the world's largest stablecoin, announced 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 addresses were flagged for alleged connections to illicit activities, 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 blockchain analytics firm AMLbot, the addresses appeared in documents and posts related to scams. This move comes as the debate surrounding the role and responsibility of stablecoin issuers in preventing the transfer of funds linked to illegal activities is once again under scrutiny.
Recently, the Financial Action Task Force warned that stablecoins are increasingly being used for illicit transactions, including the evasion of sanctions and money laundering. While public blockchains allow transactions to be traced, 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, in which 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. Additionally, the company is expanding its presence in the US market with the launch of the USAT token, which complies with federal stablecoin regulations, in partnership with federally regulated crypto bank Anchorage Digital.
This effort is led by former White House crypto advisor Bo Hines. Tether is also preparing for a full audit of its reserves for the first time, a long-promised step aimed at improving transparency and aligning more closely with regulatory expectations for stablecoins.