Holding stablecoins in a self-custodial wallet feels a lot like holding cash. It isn't. Payments company Conduit says Tether (USDT) has kept $2.76 million of its money frozen for more than a year, and it has now gone to court.
This article explains how Tether and Circle, the issuer of USD Coin (USDC), can block wallets, who can ask them to, and what protections holders actually have.
TL;DR
- Tether and Circle can block any address on the blockchains where their tokens live, even wallets that never dealt with them, and Tether can also burn a frozen balance and reissue it elsewhere.
- Circle's written policy ties freezes mainly to legal orders and a few urgent exceptions, while Tether's terms let it act whenever it judges a freeze "prudent."
- Two lawsuits in New York, including Conduit's $2.76 million claim, now test whether that technical power gives issuers a legal right to hold other people's money.
Can Stablecoin Issuers Freeze Crypto Held In Private Wallets?
Yes, and the owner of the wallet does not need to be a customer of the issuer.
A self-custodial wallet gives its owner control over the private keys. It does not give control over the token contract, which is the ledger that records who holds how much USDT or USDC. The issuer wrote that contract, and it kept a set of administrative powers for itself.
Tether announced on Apr. 23, 2026, that it had helped the U.S. government freeze $344 million in USDT across two addresses. The company said the action followed information shared by several U.S. authorities, including the Treasury's Office of Foreign Assets Control (OFAC). Yellow reported at the time that both wallets sat on Tron (TRX).
In the same release, Tether said it works with more than 340 law enforcement agencies in 65 countries. It said that cooperation has supported more than 2,300 cases globally, including over 1,200 tied to U.S. law enforcement. It has also led to the freezing of more than $4.4 billion in assets, including over $2.1 billion connected to U.S. authorities.
"USD₮ is not a safe haven for illicit activity," Tether chief executive Paolo Ardoino said in the statement.
Circle describes the same capability in its Stablecoin Access Denial Policy. The document says Circle "has the ability to block individual addresses from sending and receiving Circle Stablecoin on every blockchain to which Circle Stablecoin is issued." Once that happens, all the USDC held at the address is stuck.
The sums under these controls are enormous. USDT had a market capitalization of roughly $183.9 billion on Oct. 15, according to MetaMask's price page, while Coinbase data put USDC near $72.7 billion on Oct. 16.
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Image: Shutterstock
How Do USDT And USDC Smart Contracts Implement Blacklisting?
The USDT contract on Ethereum (ETH) lives at the address 0xdAC17F958D2ee523a2206206994597C13D831ec7. Its code contains a short list of functions that only the contract owner, Tether's multisig wallet, can call. The blacklist tools have been part of the contract since its current deployment in 2017.
Here is what those functions do:
- addBlackList(address) flags a wallet, after which the contract rejects its outgoing USDT transfers.
- removeBlackList(address) clears the flag and restores normal use.
- destroyBlackFunds(address) sets a blacklisted wallet's balance to zero and cuts total USDT supply by the same amount.
- isBlackListed and getBlackListStatus let anyone check whether an address is flagged.
The same contract also carries pause, issue and redeem functions. It even has a deprecate function that can redirect the token to an upgraded contract.
One quirk often surprises holders. A blacklisted USDT address can still receive tokens, it just cannot send them, and The Defiant found that 10 addresses in one disputed case had taken in about 101 USDT since being frozen.
Circle publishes the code for USDC, a contract it calls FiatToken, on GitHub. Instead of a single owner key, the design splits power across named roles:
- The blacklister adds addresses to the blacklist and removes them.
- The pauser can halt the entire contract, which stops all transfers, minting and burning.
- The masterMinter decides who may create new USDC and how much.
- The owner can reassign those roles, while a separate admin can upgrade the contract.
Circle's token design notes say a blacklisted address cannot transfer tokens out and cannot receive new ones. Unlike USDT, a frozen USDC wallet is sealed in both directions.
Because USDC sits behind an upgradeable proxy, its rules can change over time without the token changing address. That flexibility cuts both ways, since it lets Circle fix bugs but also add new controls.
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What Is The Difference Between Freezing, Burning, Seizing And Reissuing?
These four words often get used as if they mean the same thing. They describe very different outcomes for the person holding the tokens.
- Freezing locks an address. The balance stays visible on-chain, and the issuer can reverse the freeze later.
- Burning destroys the tokens. In USDT's case, destroyBlackFunds wipes the balance and the total supply shrinks.
- Seizing is a legal act, not a technical one. A government takes control of the value, usually under a warrant or a forfeiture case.
- Reissuing is how seizure works in practice. The issuer mints fresh tokens equal to the burned amount and sends them to a wallet chosen by a court or an agency.
Tether said the U.S. Department of Justice acknowledged its support in a seizure of $225,364,961 in USDT tied to pig butchering fraud, the figure named in a civil forfeiture complaint. According to blockchain analytics firm TRM Labs, the U.S. Attorney's Office in Washington filed that complaint on Jun. 18, 2025. Tether burned the frozen tokens and reissued the equivalent value to the U.S. government, where it may be used for victim restitution.
Shawn Bradstreet of the U.S. Secret Service told CNBC that the seizure marked "the largest cryptocurrency seizure in U.S. Secret Service history."
Burn-and-reissue lets authorities take the money without ever obtaining the original wallet's private keys. That is why prosecutors like it, and why holders on the other side of it worry.
BlockSec, a blockchain security firm, estimates that 55.6% of the USDT value blacklisted in 2025, or $698 million of $1.26 billion, was later destroyed. Its analysts say most of those burns pair with a reissue to law enforcement or victims.
The timing does not always line up with the courts. In one case now being litigated, a magistrate judge's warrant directed Tether to burn frozen USDT and mint replacements into a government wallet, months after the tokens had already been blacklisted.
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Who Can Request A Stablecoin Freeze, And When Can Issuers Act Without A Court Order?
Circle's written policy reads like a narrow gate. The company says it "will not deny access to individual addresses" except under listed exceptions, and the main one is a legal order from a recognized U.S. or French authority or court. A footnote names the competent U.S. courts as those in Delaware or Massachusetts.
The exceptions still leave room to act before a judge rules. Circle may block addresses in response to certain urgent law enforcement requests pending a valid court order. It may also act on sanctions-related government requests, imminent national security threats, court orders awaiting the Mutual Legal Assistance Treaty process, and security breaches such as a compromised minting key.
Circle chief executive Jeremy Allaire defended that approach at a press conference in Seoul, CoinDesk reported on Apr. 13, 2026. "Circle has a very, very clear performance obligation under the law," he said. "Circle follows the rule of law, and we are able to undertake actions such as freezing a wallet at the direction of law enforcement or the courts."
Critics argue the approach leaves a window that hackers can exploit while paperwork catches up. On-chain investigator ZachXBT pointed to the Jan. 25, 2026, Swapnet exploit, where, according to Bitcoin.com News, 3 million USDC of $16 million stolen stayed accessible for two days while Circle declined freeze requests.
Tether's terms cast a much wider net. They allow Tether to freeze tokens "as required by applicable Law or where Tether, in its sole discretion, determines it is prudent to do so." Another clause lets it "seize and deliver your property to any applicable Government, law enforcement, or other authorities where circumstances warrant or in accordance with Laws."
Tether expanded its reach on Dec. 9, 2023, with a voluntary wallet-freezing policy aimed at addresses on OFAC's Specially Designated Nationals list. The company said it would offer on the secondary market "the Sanctions controls it already enforces for wallets on its platform." In practice, that covers wallets that never opened an account with Tether.
Sanctions show how ordinary users can get caught in the middle. Circle froze over 75,000 USDC linked to 44 addresses of the mixer Tornado Cash on Aug. 8, 2022, the day OFAC sanctioned it, according to Dune Analytics data. "We have addressed the sanctions and blocked the addresses associated with OFAC's Tornado Cash designation," Circle told The Block, which noted that people with USDC deposited in the Tornado Cash pool might be unable to withdraw it.
Courts later pushed back on the sanctions themselves. On Nov. 26, 2024, the U.S. Court of Appeals for the Fifth Circuit held that Tornado Cash's immutable smart contracts are not "property" that OFAC can block, and the Treasury later delisted the mixer.
The GENIUS Act, signed on Jul. 18, 2025, turned freeze capability into a condition of doing business in the U.S. Its text says a permitted issuer "may issue payment stablecoins only if the issuer has the technological capability to comply, and will comply, with the terms of any lawful order."
The law defines a lawful order as a final and valid order from a court or an authorized federal agency. Such an order requires an issuer to "seize, freeze, burn, or prevent the transfer of payment stablecoins" it issued. Foreign issuers whose tokens are sold in the U.S. must meet the same capability test.
The statute sets a floor, not a ceiling. It demands that issuers obey formal orders, but it does not stop them from acting earlier under their own terms, and that gap is where the new lawsuits land.
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What Happened In The Conduit-Tether Dispute?
Conduit filed its complaint on Oct. 5 in the U.S. District Court for the Southern District of New York, as The Block reported. The suit names four defendants: Tether Holdings, Tether International, Tether Operations and Tether Investments.
Conduit says Tether froze its treasury wallet on Sept. 24, 2025, when it held about $2.76 million in USDT. The company uses USDT and USDC to move money across more than 100 countries, and it calls the wallet the "equivalent of [Conduit's] operating bank account."
According to the filing, the freeze traces back to a Brazilian Federal Police investigation into Bull Intermediação de Negócios and a related firm, Onix Intermediações, a former Conduit customer. Conduit says Onix stopped using its platform in April 2025, roughly a month before the treasury wallet was created, and that the wallet never held Onix funds.
The company claims Brazilian police confirmed they never flagged the wallet for freezing. It also says a Brazilian court confirmed that Conduit was not under investigation in the Onix case.
Reports by Crowdfund Insider, Unchained and Blockonomi add detail. Conduit cites a July 2026 Brazilian filing showing that Tether's T3 Financial Crime Unit found additional addresses "through its own analysis," and the complaint says "Tether acted on its own initiative, through its T3 Financial Crime Unit, based on its own private criteria." The company says the address processed 4,427 transactions with 78 counterparties and more than $1.1 billion between May and September 2025, none involving Onix.
"Conduit owes no money to Tether and has no obligation to Tether," the filing reads.
Conduit wants the funds released, at least $2.76 million in damages, and the interest Tether earned on the reserves backing the frozen tokens. It says the freeze contributed to layoffs and office closures. Tether had not publicly responded as of Oct. 7, and none of the allegations have been tested in court.
Conduit is not alone. On Aug. 31, Thai businessmen Nutthawat Rukthammachalern and Natthawat Kasamvilas sued Tether in the same court over 42,417,785.62 USDT frozen across 10 Ethereum addresses.
They say Tether blacklisted the wallets on Oct. 30, 2025, after an informal request from a Homeland Security Investigations agent. A federal seizure warrant arrived only on Feb. 19, 2026. Tether called that suit "a baseless attempt to interfere with Tether's important work with global law enforcement, including the Department of Justice, to prevent the unlawful use of USDT."
Together, the two cases put several open questions in front of a federal judge:
- Does the technical ability to blacklist an address give an issuer a legal right to use it?
- Can Tether's terms bind holders who bought USDT on the secondary market and never signed up with the company?
- Can a later warrant justify a freeze that was made on an informal request?
- Who should keep the interest earned on reserves that back frozen tokens?
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Image: Shutterstock
USDT Vs USDC Vs Decentralized Stablecoins: How Do Freeze Powers Compare?
USDT and USDC share the same basic switch. The difference lies in who decides to flip it and what happens afterwards.
Tether combines broad discretion with the power to burn. Circle binds itself to a narrower written policy, keeps freezes reversible, and promises to "regularly report publicly the most up-to-date amount of access denied Circle Stablecoin tokens."
The volumes differ sharply as well. Analytics firm AMLBot counted 372 blacklisted USDC addresses holding $109 million between 2023 and 2025, in a report published in December 2025. Over the same period it counted 7,268 blacklisted USDT addresses holding $3.29 billion, a gap it described as a 30-fold difference in scale.
Sky, the protocol formerly known as MakerDAO, issues two dollar tokens. The older Dai (DAI) has no freeze function. The newer USDS (USDS) has none live either, but it runs on an upgradeable proxy.
Sky's whitepaper says USDS "may eventually be upgraded to include a freeze function similar to the industry standard of other major RWA-backed stablecoins if the decentralized governance of Sky decides so." Co-founder Rune Christensen said in August 2024 that USDS would not launch with a freeze function. A few secondary sources claim one was added later, but most current analyses describe it as not implemented, so holders should check the live contract.
Liquity describes its v1 protocol as "non-custodial, immutable and governance-free." The Liquity USD (LUSD) it issues has no admin keys that anyone could use to freeze a balance.
Immutability carries its own costs. Code that no one can freeze also cannot be patched after a bug, and unfreezable tokens tend to have far thinner liquidity than USDT or USDC.
Decentralized does not always mean independent. Sky's peg stability module lets users swap USDC for USDS at 1:1, which ties part of the system's liquidity to a token that Circle can freeze.
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Can Stablecoins Be Frozen On One Blockchain But Stay Transferable On Another?
Yes, because each blockchain runs its own token contract with its own blacklist.
BlockSec notes that Tether keeps "separate lists per chain." Freezing an address on Tron does not freeze a matching address on Ethereum, although the same policy governs both lists. Yellow reported earlier this year that Tether's transparency page showed about $96 billion of USDT on Ethereum and $86 billion on Tron.
Circle's policy, by contrast, is written to cover "every blockchain to which Circle Stablecoin is issued." The switch works chain by chain, but the rulebook stays the same everywhere.
Tether showed a different kind of chain risk on Jul. 11, 2025. It said it would end USDT redemptions and freeze remaining tokens from Sept. 1, 2025, on Omni Layer, Bitcoin Cash (BCH) SLP, Kusama (KSM), EOS (EOS) and Algorand (ALGO). Tether later revised the plan after community feedback, dropping the freeze but still ending direct issuance and redemption on those networks.
Circle's Bridged USDC Standard lets third parties deploy FiatToken on new chains before Circle takes over. In that setup, roles such as blacklister and pauser can sit with a bridge or another contract, as long as they can later be transferred to Circle.
Swapping out of the token ends the issuer's reach entirely. After a series of thefts this month, CryptoTicker traced 14.7 million USDT that were swapped into 14.6 million USDD (USDD) on SUN.io on Oct. 9, beyond the reach of Tether's blacklist.
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What Happens To Frozen Tokens, And Can Holders Recover Their Money?
Frozen tokens can follow three paths. They can stay locked indefinitely, get unfrozen, or get burned and reissued to someone else.
Nothing in the USDT contract sets a deadline for a freeze. Holders who want their funds back usually have to convince the issuer, the agency behind the request, or a court.
Circle's policy says it may revert an access denial "upon formal confirmation" from the relevant authority or court that the legal obligation is lifted or no longer applies. The route back, in other words, usually runs through whoever asked for the freeze.
Tether's recovery page warns that "there is no time frame or time limit for any discretionary recovery process." That page covers tokens sent to the wrong contract, not blacklists, but it shows how slowly the machinery moves. It adds that requests "sometimes take several months" and are open only to verified users.
Freezes can also spread to innocent counterparties. Circle's USDC risk disclosures state that if "you send USDC to a Blocked Address, or receive USDC from a Blocked Address, Circle may freeze such USDC and take steps to terminate your USDC Account."
Courts can keep tokens frozen as well. The Block reported that a New York bankruptcy judge ordered Circle to keep three addresses holding USDC stolen in the 2023 Multichain hack on its blacklist, at the request of Singapore-based liquidators.
Money in a frozen wallet does not stop working for the issuer. The tokens stay in circulation, so the reserves behind them keep earning interest, which is why both New York suits ask Tether to hand that income over.
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What Should Businesses And Investors Check Before Using Stablecoins?
Conduit's case shows what is at stake. A wallet that worked like a bank account went dark for more than a year, and the company says the fallout reached its staff.
Before using stablecoins for savings, treasury or payments, it is worth working through a short checklist:
- Read the issuer's freeze policy and terms, not just the marketing. Circle limits itself mostly to legal orders, while Tether reserves broad discretion.
- Know which courts would hear a dispute. Circle's policy points to Delaware and Massachusetts, and both recent Tether suits were filed in New York.
- Screen incoming funds, since receiving coins from a blocked address can taint a USDC account. Anyone can query isBlackListed on Etherscan before accepting USDT.
- Keep records that show where funds came from, so you can answer an investigator quickly.
- Avoid holding all operating cash with one issuer or on one chain, especially chains an issuer may stop supporting.
- Decide whether censorship resistance matters more than liquidity, because immutable tokens like LUSD trade far less than USDT or USDC.
For individual holders, the lesson is simpler. A stablecoin in a hardware wallet is safe from thieves who lack the keys, but it is not safe from the company that issued it.
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The Bottom Line
Stablecoins run on public blockchains, yet the two biggest ones keep a control structure that looks a lot like a bank's. Tether and Circle can stop any address, and Tether can make the tokens vanish and reappear somewhere else.
The GENIUS Act now requires that power from any issuer serving U.S. users. What it does not settle is when a company may use it before a court says so.
That is the question Conduit and the two Thai businessmen are now asking a federal judge in New York to answer.
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