It is not the first time that the topic of blocking so-called Stablecoins – that is, cryptocurrencies linked to the dollar exchange rate – has been raised. In the summer, US authorities added the cryptocurrency mixer Tornado Cash to the sanctions list, essentially banning US companies and citizens from interacting with it.

As a result, Circle, which produces another popular USDC stack, blocked addresses associated with the mixer from working with the latter. To do so, they have added the new addresses to a so-called blacklist.

Blocking cryptocurrency addresses with USDC at the smart contract level

Of course, it’s not just Circle that does this, but also other centralised companies like Tether. The reason for this is that they are subject to regulation, so in the event of a certain request by the authorities, the blocking of the right address is bound to happen.

Which cryptocurrencies can be frozen?

Tether has frozen three cryptocurrency wallets with USDT worth $3.4, $1.95 and $2.9 million – about $8.2 million in total. “Freezing” is a specific type of action in the stabelcoin smart contract that blocks the movement of funds from a crypto-address. That is, in this case, a certain address in the blockchain is added to the blacklist for interaction with the stabelcoin smart contract. Consequently, it cannot conduct transactions with this cryptocurrency, and as a result, it is simply inside the wallet without any functionality or value.

A Tether representative has already commented on the incident in an interview with journalists from the Cointelegraph news outlet. Here’s his perspective, in which he shares his view of what’s going on.

Tether is working closely with law enforcement agencies around the world to assist with investigations, including freezing funds. Tether is unable to comment on any individual points of cooperation with law enforcement as part of its regulatory compliance program.

In other words, the aforementioned token freeze relates to an investigation by a security agency of an unnamed state, so Tether continues to remain silent in order to maintain investigative secrecy. As a reminder, the company has enough precedents for such actions. In January of this year alone, it froze more than $150 million in USDT on Ether.

Freeze notifications from Whale Alerts’ Twitter bot

The Stablecoin issuer periodically adds new crypto-addresses to its blacklist. At the time of writing, it already counts 795 cryptocurrency wallets. 215 of them have been added since the beginning of 2022, while a total of 357 crypto-addresses have been blacklisted in the past year.

Growth in the number of crypto addresses on Tether’s blacklist

The total amount of Etherium-based USDT on all frozen cryptocurrencies is over $443 million, or 0.64 percent of the 65 billion USDT in circulation at the time of writing.

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It wasn’t just Tether that came into focus this week: the infamous TerraClassicUSD (USTC) algorithmic stackcoin of their ecosystem went up 55 per cent in a week amid a renewed backing offer for the token. Recall that USTC lost its parity against the US dollar a few months ago, leading to the collapse of the Terra ecosystem and a complete devaluation of the Terra Classic token (LUNC).

The proposal was voiced by Terra Classic developer Tobias Andersen. He plans to re-bond Stablecoin using the Quantitative Tightening Principle (QT). Although Andersen has discussed with the community the possibility of re-binding via quantitative easing (QE), he believes that the chances of this happening are limited and the risks are high. Therefore, the first option would be the best way out.

TerraClassicUSD fall

Here is how Andersen comments it in his blog.

Quantitative tightening leads us down a much more painful path, involving such tests as austerity in the form of “burn-in taxes”, increasing the interest rate on steaming rewards by reducing the “fee weighting” in exchange for an increased “lock-in period” – such as 90 days – as well as efforts to recapitalise the Terra and Luna pools with “hard-earned capital” and “split pools”.

In other words, Andersen proposes to significantly reduce the circulating supply of USTC and LUNC by “hitting” the yields from stacking for the altcoin community. This is a long recovery process that depends entirely on the community’s efforts. All in all it is an ambitious and risky plan, although it is the one that has the most to do with reality in Andersen’s outlined strategies.

The Terra team will also have to release the aforementioned ‘partial pools’ and some other new features. “Partial pools” will allow decentralised applications to dynamically create their own “nested capital partitions” within the Terra pool by paying the platform a commission in LUNC. This is a form of anti-spam protection of sorts, and as a result it will provide a “blank partition” and its own “commodity token”.

How to implement all this is not yet fully understood. All plans are still at the speculation stage, and it’s unclear exactly how the Terra team is going to implement them under constant pressure from South Korean law enforcement agencies. Recall that they are investigating Terra’s collapse, which also involves Terraform Labs co-founder Do Kwon. There is a lot of conflicting news about him, too, by the way.


We don't think there's anything strange about the current situation. After all, Tether, Circle, and other asset-backed conventional stackcoin issuers have always been centralized. And because they are subject to the law and regulation, the blocking of addresses will definitely take place if the authorities request it. However, the details of this particular case are sure to be announced later.