Tether Puts The Deep Freeze On $1 Million USDT: Could It Affect You?

Tether has frozen $1 million worth of USDT and locked down an account held by an unknown person or group. 

The stablecoin issuer blacklisted an Ethereum address on December 30, rendering its funds unusable. 

Tether first started banning blockchain addresses in 2017 and has reportedly blocked more than 500 addresses on the Ethereum blockchain. 

It works with police and regulators to clamp down on crime and prevent scams or fraud. 

"Through the freezing of addresses, Tether has been able to help recover funds stolen by hackers or [that] are compromised," a spokesperson said.

The case highlights an important point about USDT. On the one hand, investors of a more traditional mindset may be reassured that Tether is able to shut down fraudsters and take action to protect users. 

Yet the case also shows that USDT is not a decentralized cryptocurrency and demonstrates that funds can be frozen at any time at the whim of Tether. 

In February 2021, Tether froze 1.7 million USDT that was stolen when the DeFi platform Yearn.Finance's DAI Vault was hacked. 

At the time, Tether CTO Paolo Ardoino wrote: ”I want to use this occasion to remind everyone that Tether $USDt is a centralized stablecoin using blockchains as a transport layer.

“Among Tether duties there is the responsibility of acting and collaborating with law enforcement and regulators regarding potential dangerous behavior.”

Tether also froze around $33.4 million of USDT following after hackers stole $610 million from Poly Network, which describes itself as a “global cross-chain interoperability protocol for implementing blockchain interoperability”.

When criminals stole $31 million of USDT from Tether in November 2017, it performed an emergency hard fork which made it impossible to trade the stolen tokens.

In some circumstances, Tether will even help users to recover their funds if they have sent tokens to the wrong address. 

This ability was demonstrated in 2020 when Tether recovered and returned $1 million worth of USDT to a group of Chinese traders that accidentally sent funds to an incorrect DeFi address.

USDT is the largest stablecoin in the world and is pegged to the dollar. It has a market cap of $78 billion, making it the third-biggest crypto asset. 

Tether claims it holds enough cash reserves to back the value of USDT, recently releasing the results of an independent audit which found that the “reserves held for its digital assets issued exceeds the amount required to redeem the digital asset tokens”.

It wrote: “Every Tether token is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, ‘reserves’).”

However, critics have often speculated about its claims to have enough cash in reserve to back USDT. 

The New York Attorney General’s office is currently leading a legal bid to reveal the exact nature of the reserves. 

Last year, New York Attorney General Letitia James alleged Tether and Bitfinex, its owner, “deceived clients and market by overstating reserves”.

“Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” said Attorney General James. “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system. This resolution makes clear that those trading virtual currencies in New York state who think they can avoid our laws cannot and will not.”

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