Tether, the issuer of USDT, is blacklisting more accounts than ever, freezing funds without legal oversight. Here’s an analysis of its growing role in on-chain confiscation.

The Rise of Tether’s Blacklisting

Tether’s USDT stablecoin has been unfairly labelled a “pirate dollar,” appealing to criminals for its perceived freedom and stable value. In reality, Tether has become an active law enforcement tool. Every day, it adds addresses to its blacklist, freezing tokens and stopping transfers.

Unlike traditional financial institutions, Tether acts as prosecutor, judge, and executioner, with no legal oversight. The control some fear from Central Bank Digital Currencies (CBDCs) is already here with Tether, turning it from a “pirate dollar” into a “control dollar.”

On-Chain Confiscation via Smart Contracts

Tether’s ability to blacklist addresses is embedded in its smart contracts, visible on blockchains like Ethereum (ETH) and Tron (TRX). When an address is blacklisted, users can no longer transfer their USDT, as doing so violates blockchain rules. This is not unique to Tether—other centralised stablecoins like USDC have similar controls.

Initially, Tether used this function sparingly. In 2017, it froze just 30 USDT, and even in 2019, the figure remained below two million. However, since 2021, Tether has significantly ramped up its blacklisting activities.

2024: A Record Year for Confiscation

In 2024, Tether set new records. By September, it had frozen 523.9 million USDT, surpassing all previous years. The total number of blacklisted addresses reached 3,150, with 2.1 billion USDT frozen in total. If this pace continues, Tether could freeze up to $1.2 billion by year-end—about 1% of all circulating USDT.

Tether vs. USDC: A Confiscation Comparison

USDC, another major stablecoin, also blacklists addresses but at a much lower rate. While USDC freezes around five million USDC per quarter, Tether consistently blacklists more than 50 million USDT. Despite having a market cap only about four times larger than USDC, Tether freezes ten times more tokens.

Destruction or Liberation?

When an account is blacklisted, two outcomes are possible. Sometimes, the account is unblocked if the suspicion proves unfounded, as with 135 addresses involving two million dollars. In other cases, Tether destroys the frozen tokens. Since August 2024, over 24 million USDT have been burned.

While the tokens are gone, Tether likely retains the fiat dollars. This practice, called “Banning-as-a-Service,” is profitable for Tether but creates uncertainty for users.

Self-Policing: Tether as Judge and Jury

Tether’s power to blacklist addresses extends beyond what regulators like the US Treasury require. While it enforces sanctions on known criminals, it often blacklists accounts without legal mandates or transparency. Many blacklisted addresses remain mysterious, even when large amounts of USDT are frozen.

The Unchecked Power of Confiscation

Tether’s increasing use of confiscation raises concerns about transparency and accountability. While it may act in good faith, the lack of oversight leaves users vulnerable. In the end, Tether retains control over all USDT, freezing and destroying accounts at will. For the company, this is profitable, but for users, it creates insecurity.

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