Tether Freezes Wallets

Updated: 11 December 2023

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Yesterday, Tether, the organization responsible for the largest stablecoin globally, declared its action to ‘freeze’ tokens in wallets linked to individuals on the United States’ Office of Foreign Asset Controls (OFAC) list of sanctioned entities. This decision, which Tether describes as a voluntary measure, aims to “proactively prevent any potential misuse of Tether tokens and enhance security measures.”

As of December 1, 2023, Tether’s initiative, primarily targeting those on the Specially Designated Nationals (SDN) List, underscores its commitment to legal compliance and strengthening the security framework of its platform and the broader cryptocurrency ecosystem.

Blockchain analysis using Etherscan revealed that Tether effectively froze 161 Ethereum wallets. Interestingly, 150 of these wallets currently contain no USDT tokens, and the historical token holdings of these wallets remain uncertain.

Significantly, the remaining 11 wallets collectively hold in excess of 3.5 million USDT tokens, with one address alone holding nearly all these tokens, amounting to 3.4 million. This address, linked by blockchain analyst ZachXBT to the recent hacking incident of the betting platform Stake, showed extensive activity with hundreds of transactions in the week preceding the freeze.

Moreover, on-chain data indicates that several of these wallets had interactions with the coin-mixing service h in the past six months. Notably, one of the frozen wallets is linked to the $625 million Ronin Bridge attack, which the U.S. Treasury Department attributes to the North Korean hacking group Lazarus Group.

Regarding the distribution of USDT tokens among the remaining wallets, two hold approximately 20,000 tokens each, and a third wallet contains close to 60,000 tokens. The rest have smaller amounts, with one wallet having only 16 cents worth of frozen USDT.

A critical observation was made two days prior to the freeze, involving a transaction of over 400,000 USDT from THORChain through two other wallets, subsequently complicating traceability. Neither of these two intermediary wallets appears to be affected by Tether’s freezing action.

Additionally, there is a possibility that these wallets might contain USDT tokens on multiple chains, including Ethereum Layer 2 networks. A Polygonscan search identified two wallets with USDT on the Polygon network, holding just over 10,000 tokens combined, with one of these also having USDT on Ethereum’s mainnet. However, similar searches on Arbitrum and Optimism networks did not reveal any USDT-containing wallets on the sanctioned list.

Paolo Ardoino’s Contributions

CEO Paolo Ardoino, in one of his first major decisions since transitioning from Chief Technology Officer to Chief Executive Officer, emphasized Tether’s commitment to maintaining high safety standards. Ardoino stated:

By executing voluntary wallet address freezing of new additions to the SDN List and freezing previously added addresses, we will be able to further strengthen the positive usage of stablecoin technology and promote a safer stablecoin ecosystem for all users.

This security enhancement measure by Tether is anticipated to set a precedent in the cryptocurrency market. It highlights the company’s dedication to user safety and contributes to the overall integrity and security of the cryptocurrency landscape.

Even DEXs Work on Preventing Illegal Activity: THORChain

Even Decentralized Exchanges are collaborating in preventing the flow of illegal funds through them.

In Oct 6, THORSwap, the THORChain-based DEX, paused trading services researchers identified illicit funds moving through the exchange. In a tweet, THORChain said it consulted advisors, legal counsel, and law enforcement before deciding to enter “maintenance mode.” Although swaps were paused during maintenance mode, THORChain users could still manage their lending and liquidity-providing operations on the exchange.

THORChain quickly reopened and subsequently said it implemented new measures to prevent similar incidents of illicit funds, such as from hackers or money launderers, to flow through the exchange.