The Impact of the First Step Act and the CLARITY Act on Cybercrime

Tether's Strategy: How the $1.3 Billion Asset Freeze Is Changing the Rules for Stablecoins

Over the past year, Tether has frozen assets totaling more than $1.3 billion in cooperation with law enforcement agencies, signaling a decisive shift from reactive policies to proactive compliance. This strategic pivot not only confirms the technical capability for centralized control over USDT but also forces users to confront a fundamental question regarding the balance between regulatory security and the risk of censorship.

Timeline of Key Freezes

Tether is increasingly assisting authorities in high-profile cases targeting international criminal groups.

• November 2023: As part of a joint operation with the U.S. Department of Justice (DOJ) and the OKX exchange, Tether froze $225 million in USDT. These funds were linked to a human trafficking syndicate running “pig butchering” fraud schemes in Southeast Asia. The investigation relied on intelligence sharing between Tether, OKX, and authorities to track illegal transactions [1].
• June 2024: The DOJ announced the seizure of over $150 million in assets, a portion of which was in USDT, in connection with another “pig butchering” scheme. In an official press release, the department emphasized that Tether “proactively provided assistance” to the U.S. Secret Service (USSS) [2].
• May 2024: According to a statement by Tether CEO Paolo Ardoino, the total value of assets blocked by the company in cooperation with law enforcement agencies from 32 countries has exceeded $1.3 billion. This figure represents the cumulative total since the company's inception [3].

Technical Blocking Mechanism: How It Works

The ability to block USDT is embedded directly into the smart contract code on blockchains that support complex logic, such as Ethereum (ERC-20) and Tron (TRC-20).

• The Mechanism: The USDT smart contract contains an addBlackList(address _user) function. This function can only be executed by an address with administrator rights (owner). Tether Limited is the contract owner and utilizes a secure multi-signature (multisig) scheme for key management while maintaining centralized control. There is also a corresponding removeBlackList(address _user) function to unfreeze assets.
• The Result: Once an address is blacklisted, it cannot send or receive USDT. Any attempted transaction involving the address will be rejected at the smart contract level. Additionally, the contract includes a destroyBlackFunds(address _user) function, which allows the issuer to burn tokens held by a blocked address—an irreversible action.
• Comparison:
  • Blacklist (Tether/Circle): Generally, major centralized stablecoins (like USDT and USDC) block both incoming and outgoing transactions for blacklisted addresses.
  • Whitelist: Some institutional stablecoins operate on a “whitelist” model, where transactions are only permitted between pre-approved addresses.
• Transparency: Anyone can verify the code and the list of blocked addresses via blockchain explorers (e.g., Etherscan [4]) or track the total frozen funds using analytical platforms like Dune Analytics.

Legal Grounds: From Freezing to Seizure

It is crucial to distinguish between the technical act of freezing and the legal process of seizure.

1. Freezing (Block): This is a technical action performed by Tether by adding an address to the blacklist. The grounds usually involve official requests from law enforcement (e.g., FBI, Interpol), sanctions lists (OFAC), or court orders. Tether may also preemptively freeze addresses based on internal risk monitoring. This is a reversible measure.
2. Seizure: This is a legal action initiated by government authorities following a freeze. A court issues an order requiring Tether to transfer the frozen funds (or burn and re-mint them) to a wallet controlled by the authorities. In cross-border cases, Mutual Legal Assistance Treaties (MLAT) are often utilized, allowing countries to enforce each other's court decisions.

Consequences and Industry Discussion

Tether’s active compliance policy has sparked a lively debate within the crypto community.

• Tether and Regulators: Tether frames its cooperation with authorities as a necessary step toward the legitimization of cryptocurrencies and user protection. CEO Paolo Ardoino argues that this makes the ecosystem safer. Regulators appear to validate this approach; the DOJ, for instance, has publicly acknowledged Tether's “significant assistance.”
• Centralization and Censorship Risks: The ability to block funds upon external request contradicts the core ethos of financial sovereignty. Human rights organizations, such as the Electronic Frontier Foundation (EFF), warn that such mechanisms could be exploited for political pressure or to suppress dissent, particularly in authoritarian regimes.
• Due Process and Risk of Error: There remains a risk that a legitimate user's assets could be frozen by mistake. Currently, Tether lacks a comprehensive, publicly documented appeals procedure for users. Unlocking funds likely requires challenging the original court decision or clearing one's name with the relevant law enforcement agency—a complex, lengthy, and expensive process.

Recommendations for Users

Given the current landscape, users of centralized stablecoins should account for issuer control risks.

1. Asset Diversification: Avoid keeping all funds in a single stablecoin. Distribute capital across multiple regulated assets (e.g., USDT, USDC) to mitigate issuer-specific risks.
2. Decentralized Alternatives: For long-term storage or transactions requiring maximum censorship resistance, consider decentralized stablecoins such as DAI (MakerDAO) or LUSD (Liquity). These protocols lack a centralized administrator with the ability to freeze individual addresses.
3. Review Terms of Service: Before utilizing any stablecoin, review its terms. These documents outline the specific grounds on which the issuer may block funds.

Conclusion

Tether's strategy of integrating with the global legal system establishes a new behavioral standard for large centralized stablecoins. While this increases their appeal to traditional finance and regulators, it reintroduces the risks of censorship and control inherent in fiat systems. The crypto industry is entering an era where participants must make a conscious choice between the compliance offered by centralized platforms and the financial sovereignty provided by decentralized protocols.

Methodology and Sources

This article is based on an analysis of official press releases from Tether and the U.S. Department of Justice, financial media reports (Bloomberg), and on-chain data from blockchain explorers (Etherscan) and analytical dashboards (Dune Analytics). A key limitation is the lack of public access to confidential court documents and Tether's internal compliance policies, which prevents a detailed assessment of specific blocking criteria.

1. Tether. “Tether Announces Major Collaboration With DOJ in Landmark $225M USDT Freeze.” November 20, 2023.
2. U.S. Department of Justice. “Justice Department Announces Seizure of More Than $150 Million in Cryptocurrency from a ‘Pig Butchering’ Scheme.” June 18, 2024.
3. Bloomberg. “Tether Has Frozen $1.3 Billion of Crypto Assets Since Inception.” May 21, 2024.
4. Etherscan. Tether (USDT) smart contract code on the Ethereum network.