In a significant move, Tether, the prominent issuer of 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. This action was taken in response to requests from US authorities, who flagged the addresses for their alleged connections to illicit activities. As a result, the movement of these funds has been halted. The nature of the activity and the identities of those controlling the wallets were not disclosed by the company.
However, according to AMLbot, a blockchain analytics firm, the addresses in question appeared in documents and posts related to scams. This development 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 cautioned that stablecoins are increasingly being used for illicit transactions, including the evasion of sanctions and money laundering. The transparency of public blockchains allows transactions to be traced, while issuers have the ability to freeze assets under specific 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 stablecoin and bridged funds across chains.
Critics argued that Circle, the issuer of USDC, could have acted more swiftly to freeze assets and limit losses. In response, the company stated that it only takes such actions when legally required or at the request of law enforcement and authorities. Tether has 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. Furthermore, 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 Anchorage Digital, a federally regulated crypto bank.
This effort is led by former White House crypto advisor Bo Hines. Additionally, Tether is preparing for a comprehensive audit of its reserves for the first time, a long-promised step towards improving transparency and aligning with stricter regulatory expectations for stablecoins.