Tether Faces Lawsuit Over $2.76 Million USDT Freeze

Conduit Technology has filed a lawsuit against Tether, the issuer of the stablecoin USDT, after Tether froze $2.76 million in USDT held in one of its treasury wallets. The payments company claims that the funds were essential for its business operations and that Brazilian police did not identify its wallet as one that should be frozen. Conduit is seeking access to the funds, a declaration that Tether lacked the authority to freeze them, and at least $2.76 million in damages.

The case highlights a significant risk for stablecoin users, particularly businesses that rely on these tokens for day-to-day operations. While USDT can remain visible in a self-custody wallet, Tether's ability to blacklist addresses means that the tokens can become unusable for transfers, swaps, or redemptions. This creates a cash-management problem for businesses, even if the token's value remains stable near one dollar.

Tether's legal terms allow it to freeze tokens or blacklist addresses when required by law, to mitigate compliance risks, or when it deems action prudent. The terms also address sanctions, anti-money-laundering obligations, and suspected prohibited use. The court will need to determine whether these terms applied to Conduit’s wallet and whether they justified the freeze. The case underscores the importance of understanding the issuer’s compliance rules and the potential risks of wallet freezes for businesses using stablecoins for payments.

For payment companies, the risk extends beyond the stability of the token's peg to the accessibility of the funds. While USDT offers faster cross-border transactions compared to traditional bank transfers, the ability to access and use the tokens is crucial for operational needs. Businesses must consider the issuer’s compliance rules, their own customer checks, and alternative payment options in case of wallet blockages.