Tether blocks USDT on cold wallets. Why this is happening

Tether has been actively adding to its blacklist of addresses over the past few days, blocking users from accessing their USDT stablecoins. According to Dune Analytics, the company blocked 12 addresses in April of this year. This means that their owners can no longer make any transactions with USDT. Let's clarify when Tether blacklists addresses.

What is the value of USDT?

Tether (USDT ticker symbol) is one of the most popular stablecoins. In terms of capitalization, the coin ranks third after bitcoin and Ethereum ($83 billion, according to CoinGecko). In terms of daily trading volume, the coin is the absolute leader with an indicator of $68,8 billion.

The high trading volumes indicate the popularity of the asset among users. USDT is used both to store funds and as an auxiliary tool on cryptocurrency exchanges. The rate of stablecoin is pegged to the price of the US dollar. According to the developers, a direct peg to the dollar exchange rate is possible due to the presence of the reserve, which is stored in the account of Tether Limited.

For reference. In 2018, the US Commodity Futures Trading Commission (CFTC) suspected Tether of failing to provide $2,3 billion worth of reserves for stablecoins.

Despite the attention from regulators, the coin is extremely popular because it is traded on all major cryptocurrency exchanges and provides owners with a stable value for the funds they hold. Stable value is what makes sense for stablecoins.

For example, if users need to lock in profits from their trades but still keep capital on the platform, they convert it to USDT and keep it for as long as they need it. At the same time, they can rest assured that there will be no significant drawdown in the price because the stablecoin will always cost the same as dollars. Stablecoins solve the perennial problem of all cryptocurrencies, volatility. Bitcoin or another cryptocurrency can go down or up by several tens of percent in a day.

A brief history of Tether

In 2014, crypto industry veterans Brock Pierce and Craig Sellars teamed up with the entrepreneur Reeve Collins to launch the startup Realcoin, releasing a cryptocurrency of the same name. The project was developed based on bitcoin using the new Omni Layer protocol. It was soon rebranded, leading to the creation of Tether Limited.

Initially, the creators promoted such properties of stablecoin as:

• stability - the value is pegged to the exchange rate of stable fiat currencies, primarily the dollar;
• transparency - open source code and availability of information on the amount of money in the storage and on the balance of users' accounts;
• collateralization - according to the owners of the company, USDT is collateralized by currency reserves, as well as bonds and loans;
• high speed of transactions.

In 2015, Tether Limited released the USDT stablecoin. Almost immediately after its appearance, the coin began trading on the Poloniex cryptocurrency exchange. Soon USDT was listed on other major exchanges.

Gradually, the stablecoin approached other digital assets in popularity and firmly established itself in the top 5 largest cryptocurrencies by capitalization. People's faith in the dollar and the integration of Tether with cryptocurrency exchanges ensured the currency's stable position. This reserve is convenient for traders and those who use international payments. Fees on exchanges for USDT deposits and coin withdrawals are minimal or zero, reducing transaction costs for users.

In 2021-2022, the reputation of the stablecoin was shaken again due to the blocking of wallets of hundreds of users.

Tether's blacklist

Tether first blacklisted addresses, now published on the cryptocurrency community resource dune.com, in 2017, when the company blocked USDT worth $30 million stolen by hackers.

It now includes more than 630 wallets officially blocked by the platform. Holders of these assets cannot make any transactions with the blocked USDTs. In fact, at the moment, the coins are lost to users.

What is stated in the Terms of Service

From the legal point of view, the company's blocking is completely legitimate. This possibility is stated in the terms of service, which the owner of USDT accepts when buying coins. The general message of the document is that the company is the true owner of all Tether assets, and buyers can only use the coins temporarily with the permission of the issuer after the conclusion of the bilateral agreement.

In addition, the company reserves the right to refuse service to anyone suspected of attempting to conceal or steal identity, money laundering, movement of illicit proceeds, or being on any state's economic sanctions lists. Those who interact with citizens and entities on the sanctions lists will also be denied.

Individuals accused of insider trading, cybercrime, fraud, drug trafficking, and prohibited goods may be without funds.

How to secure your funds

The stability of USDT is a quality that attracts users. However, the risk of being blocked negates all the advantages of a stablecoin.

Algorithmic stablecoins such as TerraUSD (UST) and Dai (DAI) look like the most worthy alternative instruments. They are not collateralized by US dollars, but by a unique mechanism that controls the circulation of coins. These are full-fledged decentralized coins based on smart contracts, which work without governing bodies.

Earlier the editorial staff of GetBlock Magazine published a review article about algorithmic stablecoins, which described in detail the mechanism of operation of such assets.