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How Tether turned the stablecoin into a panacea for regulators and a threat for users

With a market capitalization of about $186 billion, USDT has become the digital dollar for millions of people worldwide. However, the token's issuer can freeze funds at a specific address at any time — and regularly exercises this right. In the last six months alone, Tether added 2,362 addresses to its blacklist on the Ethereum and TRON networks, blocking $1.64 billion on them. Typically, such decisions target hackers and scammers, but the very possibility of a freeze means that even on a non-custodial wallet, the holder does not fully control the tokens.

Together with the team behind the Bitcoin mixer Mixer.Money, we examine how the USDT freeze mechanism works, why ordinary users sometimes get caught in it, and why holding funds in stablecoins is riskier than holding Bitcoin.

The Ardoino List

USDT is a centralized stablecoin, and Tether does not hide this. Company CEO Paolo Ardoino emphasizes this feature of the token and often contrasts it with Bitcoin as an alternative. The ability to block an address and forcibly destroy tokens is embedded in Tether's smart contracts on Ethereum (ERC-20), TRON (TRC-20), Solana, and other networks. The function names may differ, but the principle is the same:

• Adding to the blacklist (addBlackList) — the address owner loses the ability to send USDT; any transfer is rejected at the contract level. The address itself remains active: it can receive new USDT and freely manage the network's native coin like ETH, TRX, or SOL;
• Removal from the blacklist (removeBlackList) — restores the ability to transfer tokens;
• Destruction of funds (destroyBlackFunds) — irreversibly burns USDT at the blocked address. The owner will no longer be able to recover them.

After burning, Tether can issue an equivalent volume of tokens at another address. Re-issuance is used when funds are returned to victims or transferred to wallets under law enforcement control. According to BlockSec estimates, it takes an average of about two days between the issuance of a freeze order and its execution on the network.

Promissory Note vs. Digital Gold

Behind every freeze is an external request. Tether freezes an address based on a single verified request from law enforcement — without warning the holder or providing an appeals process before the freeze. The user learns about the restriction only after the freeze occurs. The T3 Financial Crime Unit (T3 FCU) — a joint project of Tether, TRON, and analytics firm TRM Labs — executes the freeze within 24 hours. Since its creation in September 2024, the alliance had frozen over $450 million across 23 jurisdictions by May 2026.

The stablecoins themselves for freezing are identified by on-chain analytics companies like Chainalysis, Elliptic, and TRM Labs. They assign risk levels to wallets and link them together. If an address receives a high risk score, AML systems also raise the assessment for wallets connected to it. Sometimes, random users whose coins once passed through a recognized "dirty" address end up under restrictions. Analysts also track Bitcoin, but it is impossible to take it away from the owner without private keys.

USDT and USDC are debt obligations of a centralized issuer. It retains control at the contract level: it can block transfers, burn balances, and re-issue amounts. The holder manages the private keys, but not the token's rules. Bitcoin has no administrator, no blacklist functions, and no "big red button" like destroyBlackFunds. There is simply no one to execute such a request. However, the risk of freezing does not disappear entirely. It shifts from the protocol level to the level of exchanges, swap services, and other centralized platforms — where users have their documents checked and accounts can be frozen.

Attempts to impose censorship within the Bitcoin network itself have already been made. In 2021, mining company MARA launched the first OFAC-compliant pool in North America, which filtered transactions based on sanctions lists. The community saw this as a threat of censorship at the block production level and sharply criticized the initiative. Two months after the announcement, MARA shut down the experiment. Converting USDT to Bitcoin removes the risk of freezing at the issuer level. But it does not eliminate on-chain surveillance: contrary to popular stereotype, the first cryptocurrency is not anonymous, but pseudonymous.

Privacy After Conversion

To hide the link between addresses, additional tools are required. There are several ways to break the on-chain trail, and each has its limitations:

• CoinJoin — joint mixing of coins from multiple users in a single transaction. This mechanism is usually recognized by analytics systems, so the mere fact of using CoinJoin can increase an address's risk score;
• Centralized mixers — they do not combine users in a common transaction but instead receive funds into their own pool and then send other coins. This allows breaking the direct on-chain link between input and output, but requires trust in the service operator;
• Bitcoin mixers using verified coins — they do not mix user funds with each other and do not use their own liquidity pool. Instead, they utilize verified clean coins from trusted investors, which allows breaking the direct on-chain link between incoming and outgoing transactions.

Mixer.Money belongs to the last category. Unlike CoinJoin, it does not mix funds from different participants. The bitcoin.mixer 2.0 algorithm uses verified clean Bitcoins from trusted investors, which allows breaking the direct link between incoming and outgoing transactions. In "Full Anonymity" mode, coins are split into random parts in a premixer and sent to independent investors. After a random interval, which protects against time-based analysis, the sender receives an equivalent amount minus a fee. The funds arrive at two new addresses that are not on-chain linked to the original wallet.

Panopticon Tether

The freeze function helps investigate crimes and return funds to scam victims. During its operation, T3 FCU has been involved in cases related to money laundering, drug trafficking, terrorist financing, and the activities of North Korean hacker groups. FATF has called the unit an "invaluable resource for law enforcement agencies worldwide." Such activities contribute to growing regulatory trust in the crypto industry as a whole. But this system also has a downside. USDT remains a centralized asset, and access to funds ultimately depends on the issuer's decisions and requests from authorities. In essence, the stablecoin has become a node in a global surveillance system: a private company connected to hundreds of agencies and analytics services can freeze "digital dollars" virtually anywhere in the world.

In this sense, the USDT ecosystem resembles a digital panopticon: most users never directly encounter restrictions, but they know such a possibility exists. The effectiveness of this mechanism strengthens regulatory trust, but simultaneously continues to erode the boundaries of financial autonomy, already narrowing as cash is gradually phased out. "Diversification" among major stablecoins only spreads the dependence across multiple companies, but the freeze architecture itself remains.

Bitcoin has neither an administrator nor a single control center, so there is simply no one to execute a request to freeze funds at the protocol level. This makes it the only major digital asset that does not depend on decisions by an issuer, regulator, or bank. The first cryptocurrency cannot be frozen, seized, or burned by a third party's decision, and its issuance rules remain unchanged regardless of state inflation policies or legislative changes. Bitcoin protects against arbitrary fund freezes but does not hide financial activity from prying eyes. All transactions are recorded in a public ledger and can be analyzed years after they occur. Privacy-enhancing solutions like Mixer.Money help reduce the digital footprint.

My expert opinion: The stablecoin market, while convenient for everyday transactions, turns users into hostages of corporate policy and state interests. Bitcoin, on the other hand, remains the only truly sovereign asset where control over funds does not depend on external decisions. However, its true value is only realized with the proper use of privacy tools; otherwise, the on-chain trail can negate all the benefits of decentralization.