Most users assume stablecoins are "decentralised"; yet the most widely used stablecoins, such as USDT and USDC, are assets that the issuer can freeze unilaterally. As of 2026, Tether has frozen over $4 billion in USDT linked to illicit activity. In this article, we examine how the freeze mechanism works, what triggers it, and the "clean coin" (contagion) risk that affects even innocent users.
Important: This article is for general information only and does not constitute legal advice. The figures and examples cited are based on publicly available reports.
The smart contracts of USDT and USDC contain functions giving the issuer the power to "blacklist" specific wallet addresses. In Tether's contract, these appear on-chain as AddedBlackList and DestroyedBlackFunds events, verifiable by anyone via Tronscan or Etherscan. Once an address is blacklisted, the USDT it holds can no longer be transferred; the funds are effectively frozen. Circle's USDC has an almost identical blacklist function.
An important reality: the decision to freeze a stablecoin is executed by the issuing company's (Tether/Circle) compliance team — before any court is involved. Technically, the entity "pressing the button" is a centralised private company.
According to public data and issuer statements, freeze decisions stem from three core scenarios:
| Criterion | Tether (USDT) | Circle (USDC) |
|---|---|---|
| Approach | Proactive; active cooperation with law enforcement | More reactive; usually awaits a formal decision |
| Volume frozen | Over $4 billion (cumulative) | Relatively limited |
| Trigger threshold | Includes intelligence-based preventive freezing | Generally a court order or OFAC designation |
| Network distribution | Most frozen USDT on TRON (TRC-20) | Mostly Ethereum (ERC-20) |
According to information that became public in February 2026, over $500 million in USDT — assessed as feeding illegal betting networks and suspicious payment traffic — was frozen by Tether in coordination with Turkish judicial authorities and pushed out of the system. This operation concretely demonstrated that the stablecoin freeze mechanism is not unique to the US; it can also be operated through Turkish prosecutorial and MASAK processes.
This example can be read two ways: on one hand, it is a powerful tool for tracing proceeds of crime; on the other, it highlights the risks of concentrating freeze authority in a centralised private company.
The most insidious risk of 2026 is not theft but contagion. Even a user who has committed no crime may face a freeze if the USDT reaching them previously passed through a suspicious address or became linked to a chain later blacklisted. In P2P transactions in particular, the counterparty's history of suspicious transactions can put the recipient's account at risk.
Critical for OTC desks and corporate treasuries: The "history" of the stablecoin you receive can become your responsibility. When the music stops, the party holding the "tainted" coin may be the one bearing the loss, even if not guilty.
The return of a frozen stablecoin usually depends on the outcome of the relevant law enforcement / judicial process. Issuers like Tether release only a small portion of frozen funds within the year; a significant part is permanently destroyed (burn). For this reason, a Turkish user facing a freeze should run both the process before the issuer and the judicial process in Turkey in parallel, acting with expert legal support.
At Koru Legal, we advise OTC desks, corporate treasuries and individual users on managing stablecoin freeze risk, wallet screening processes and the legal procedures for frozen funds.
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