Topic: [UPDATED] PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets (Read 2345 times)

As you worried about the central entity will freeze your money, this mean you're not good enough to believe anything that centralized. I would recommended to use decentralized stable coin e.g. DAI.

Based on his post, it seems he come from India where the government often ban and unban Bitcoin so easy like flip a coin. Your choice is good if you live on a country that doesn't did Bitcoin legality drama, but it isn't a good choice for him.

That depends on a lot of factors, it is not like all the banks all around the world are freezing all crypto owners' bank accounts. Sometimes it is the country's laws that mandates such things, sometimes it is tax evasion, sometimes it is just the number of transactions and their sizes that raise some red flags and sometimes they are sending or receiving money to places that raise red flags leading to the bank suspending their accounts.

I'd still go with banks if I had to choose between them and stable coins.

I was just browsing across threads related to stable coins and found this one. This is a wonderful post.
So to conclude that the options for stable coins are too slim and still are risky.
I wanted to know which stable coin should I be holding when there comes a need to sell my coins to buy them back later.
But holding stable coins for a long time will put me at more risk. We can exchange the coins to fiat money but then there's the hassle of withdrawing to banks.
At the same time, there are times when the banks can freeze our account too in case of suspicious activities.
I have read cases where crypto holders' bank accounts had been frozen in my country.

So there's basically nothing to do ? Either take the risk of stable coins or the banks ?

Apologies for the late reply.

I really wouldn't say that. DAI is far more trustless because it doesn't have a freeze function, but DAI is significantly backed(collateral) by USDC, so there might be some price stability problems for DAI if Circle(the company that backs USDC) somewhat interferes.

In summary, DAI isn't necessarily better or worse, it just has a different kind of risk.

so would you say DAI is the best choice of a stablecoin to use it in a bearmarket?

What figmentofmyass said.

But mostly, I think it's really safe to assume that a significant number of USDT holders are people who earn bitcoin/crypto online(may it be through jobs/gigs/or crypto trading), and wanted to hold USD, a more "stable" asset, and at the same time without being taxed for their income. Pretty much one of the reasons why some people hold BTC.

Thanks for your reply. This the answer i needed & make more sense imo.

1. fast settlement time. normal fiat exchanges can take days or even weeks to credit or fulfill fiat transfers. USDT can be deposited and withdrawn in a matter of minutes.

2. chinese traders need fiat hedging instruments because the government banned CNY/crypto trading. USDT being the most lax (AML wise) and liquid of all stablecoins, it was the obvious market choice.

3. no KYC requirements on secondary markets. so exchanges like binance, poloniex, kucoin, and chinese exchanges can allow BTC/fiat hedging without verification.

4. the first 3 points reinforce strong demand for USDT markets from traders, making for thick order books. this further draws in more traders who naturally seek out markets with high volume and liquidity.

One thing that became a question in my mind. Why tether is still used in several large exchanges. Even most exchanges that trade perpetual still use tether as a reference. With all the weaknesses that tether has, why do the exchanges still use it? Mind t share the reason? Tbh, I'm still looking for the reason.

i'm not amazed really since it is expected. tether grew because it is filling a gap and will continue to grow as long as that gap exists.
this gap is two things. first is the need that altcoin traders have for something that has a "stable" value so that they can escape to whenever bitcoin rises or drops and causes the mass dump of altcoins. and second is another need that altcoin traders have for an easy, cheap, no KYC way of transferring value between exchanges.
if you compare the times when tether growth peaked with the altcoin market pump and dump periods you can see that the major rises were:
1. 2017 mass altcoin pump when every single altcoin even the long dead ones worth less than 1 satoshi got pumped
2. 2017 ICO mania where thousands of ICO were being created every month or so
3. 2018-2019 mass altcoin dump which was the reverse of #1
4. 2018 mass ICO death which was reverse of #2
interestingly enough tether was added to ethereum network to exactly be used for pump and dumping ICO tokens during the ICO mania by the end of 2017 and grow a lot during the ICO death spiral next 2 years.

this is also why i always found it very weird when people kept linking tether with bitcoin price when almost all of tether's volume (near 98%) and its main purpose is for altcoin trading.

the chinese seem to have a strong liking for tether, whether or not they are fully backed.

tether teaches us time and time again that market fundamentals don't matter all that much to price. it really doesn't matter if USDT aren't backed 1:1. what matters is that tether will redeem at 1:1 for large brokers and arbitrageurs (keeping the market pegged) and that there is massive USDT liquidity in the market, much bigger than other stablecoins.

You can still get a dollar or a dollar's value for it. That's what it's for and that's all that people care about.

I'm really amazed it's continued to grow but it's just another illustration of the willingness of people in this space to make the same old mistakes, and some sexy new ones.

Wait, what? I don't pay much attention to altcoins, especially not scam ones like Tether, but wow. Last I knew they had pumped up to $6 billion, but looking at the charts they printed another $2.5 billion in a single go back in May. That's crazy. I assume they provided proof of funds which was co-signed by an independent third party auditor, right? Nobody in their right mind would just let them inflate their marketcap by $2.5 billion out of thin air, especially when they still have an outstanding loan to themselves of $500 million, right? I'm sure Tether holders everywhere were up in arms about this.

I'm sure they are, but I'm also sure we will never know because Bitfinex will provide zero explanation of why they are remotely freezing users' addresses. Given that, there is nothing stopping them from freezing several more million USDT and providing no explanation.

USDT is a coin which can be remotely frozen or seized, is constantly being devalued by endless printing, and is only partially backed up by USD which in itself is also constantly being devalued by endless printing. I would be surprised that people are still using it, but then again, that's still not as bad as some altcoins.

that seems doubtful to me. there is less than $10 million USDT frozen---bitfinex makes as much in trading fees in a matter of weeks. considering $9.2 billion of tether has been issued in total, this amount of money is a rounding error, so i really doubt tether could be bothered with a scheme like that. as with the USDC freeze, these frozen funds are likely related to law enforcement requests---theft, OFAC sanctions, things like that.

It isn't that far from being impossible knowing that they can. It just scares me how a lot of people think this is not possible just because it's a "cryptocurrency" and that they're holding the funds in their own non-custodial wallet.

they know very well what happened to each exchange that suddenly did this while others weren't, how their users mass-migrated to the competition and they dropped from being far head #1 down to #10, #20,... and kept going down.
so i don't think we can expect such behavior anytime soon unless there were serious governmental pressure.

Whatever is the reason it is still possible for them to freeze your coin. You cannot justify such activity with a legal angle. I always felt the whole concept of a stable coin is a scam. Tether has been printing it for a long time just like fiat. 

But 40 addresses containing a combined almost $10 million USDT have been blacklisted going as far back as 2017, and this is the first we're hearing about it. Given the Tether is a complete scam from top to bottom, I wouldn't put something like this past them.

Centralized exchanges freeze accounts and seize coins all the time with very little blowback from the community. No reason Tether can't do the same. I also wouldn't be in the least bit surprised if Tether started demanding KYC and proof of address ownership from various people in return for having their addresses un-blacklisted.

My guess for those moves are theft, technical reasons and general housekeeping.

Since they have an official burning process there's no need to blacklist anything to 'remove' them. That also increases paranoia about their activities, which they probably don't care about, but I doubt anyone would want to foster it.

Looks like another address containing another $1.5 million USDT was just banned yesterday. You can keep track using this dashboard: https://explore.duneanalytics.com/public/dashboards/3zhIaRUCFgmZMKqHG0pguvSvw1aOGL8gxFtZ2ujf

Call me cynical/crazy, but maybe this is how Tether get out of the fact that they have printed millions of USDT out of thin air which aren't backed up by USD, or indeed, by any asset whatsoever. Permanently blacklisting an address like this effectively burns the coins and removes them circulation. Nice easy way for them to renege on some of their commitments.

I presume most of that is straightforward theft more than anything, as quite possibly the USDC one is too. Some are theorising in that Twitter thread about there being something wrong with the addresses themselves but I know zilch about ETH and wouldn't think that was possible. Nowt would surprise me though.

if you think about it, holding USDC is really no different than holding USD at coinbase. they are both just centrally issued IOUs from an exchange. freezing and confiscation were always a possibility, especially when you consider potential requests from law enforcement. i was always curious about the exact method of confiscation. i guess now we know.


i was surprised to find out recently that tether has actually blacklisted significantly more. there are dozens of blacklisted (frozen) addresses totalling ~8 million USDT. https://twitter.com/PhABCD/status/1281054838172848128

PayPal and similar services masquerading as banks are not exactly a paragon of reliability. PayPal especially is infamous for freezing funds for 6 months for spurious reasons.

and more USDT will be frozen https://cryptobriefing.com/tether-can-freeze-your-usdt-39-addresses-containing-millions-blacklisted/
just wait for it

I seem to recall Tether cancelling hacked balances but other than that it would be interesting to see how they handled such a thing.

The main difference between Tether and everything else is them effectively giving up the dollar redemption. You have to find a third party mug to do it.

All they're doing in the main is operating a standard ERC20 token. Not having to deal with banking for regular dweebs, other than their own druggy banking to initially fund it and the tiny inner circle who they presumably do allow to cash out, is going to massively reduce their twitchiness.

I'll guess the standard stablecoins regard themselves as extensions of the dollar with all the terror that entails. Tether are probably the opposite.

Shouldn't really be surprising indeed, but a lot of people shrugged this off because they haven't heard of such occurrence in the past. Well, here you go. I really wouldn't be surprised if at one point the wallet-locking occurrences will be no different with how much PayPal accounts are being locked.

Until someone did something that attract government attention and Tether will be pressured to do similar action.

It shouldn't be surprising and since it's their toy, being at their mercy should be expected.

The problem is at whose mercy you are. Circle's track record is not one of competence and none of these operations are accountable or approachable. They're also terrified of triggering their legacy masters and you're the one stuck in the middle who'll pay the price for that. You have the odds doubly or triply stacked against you.

At least with a normal bank you have a place to cover in cow shit in protest and identifiable people to blow up. With stuff like this you're nothing but an ignored email.

Bump! Here it is ladies and gentlemen, as far as I know this is the first. But yea, think. twice. when. holding. stablecoins.


Article: https://www.coindesk.com/circle-confirms-freezing-100k-in-usdc-at-law-enforcements-request

At least with PayPal you have reliable support, you are quite sure your $1 will still be worth $1 tomorrow and can solve any issue way faster. Have problems with a cryptocurrency? Good luck getting out of your own sh*t fast enough without having to be considered some sort of criminal by the authorities.

Only few days ago did I say over here that stablecoins may be good short-term "safezones" for Bitcoin parabolic changes. I'm now taking back my own words. Better have a 30% overnight paper loss than have 100% of your balance frozen and blacklisted.

I'd seriously rather use a bank than storing my fiat money in a stablecoin, a bank is less likely to go down, and in the event it does there's even some chance to get some of your money back. Banks can even get bailed out by central banks, but with stablecoins you get all the downsides of centralized custodians, plus some of the downsides of crypto, like managing your private keys, and then there's no of the benefits, like legal protection, deposits, cashback, etc.

Giving this a bump.

https://www.theblockcrypto.com/linked/70850/centre-appears-to-have-blacklisted-an-address-holding-usdc-for-the-first-time

100,000 USD (C) frozen.

I wonder what the story is behind this.

As ever these things are nothing more than Paypal with extra paranoia and desperation to yield to The Man. There'll be plenty more of this in future.

Ironically this is likely to fortify Tether's position.

I totally agree with this. I'm a bit interested in Ethereum, but there's no way I'd invest money in ETH. I'm just watching in the sidelines as of now and I really don't see that changing anytime soon. Seriously, if only the Ethereum people wasn't like immediately concluding that Ethereum is this super wonderful thing that's guaranteed to succeed in the future(and shitting on Bitcoin because apparently everything should be using a blockchain lul), Bitcoin maximalists wouldn't be shitting on it.

it's certainly been a learning experience. i never realized how dangerous DAI was. the underlying CDPs are prone to margin flash crashes. at first i thought "oh well, that's the risk CDP holders took, at least it only affects them". but like any situation where liquidations can't be absorbed by the market, borrowers aren't the only ones who suffer. the flash crash screwed over DAI holders by leaving $4.5 million of unbacked DAI in the system.

and we all thought tether was the only stablecoin that wasn't fully backed.

I am completely unsurprised by what happened there. When it comes to things like this there is one rule - if the potential to screw up badly is in there somewhere it will happen and there will be someone at the right time and place to exploit it. And if random events don't make it happen then someone will force it to happen.

No way do I trust ETH, any programmer or any contract to be dependable enough to run something like that where it actually counts in the real world. It's all too amateurish still. Things like this should remain a research project until it's totally bulletproof and maybe it never will be.

It's good for research purposes that it happened. Things will be learnt. Not good for the people who got boned by it.

Yea it's really unfortunate. Though I was always heavily skeptical of MakerDAO due to it's huge potential to break down when black swan events occur(like what we had recently), I've always found it really really interesting. Unfortunately it's the only "stablecoin" we have right now that's unconfiscatable(correct me if I'm wrong).

The situation with centralized stablecoins is much the same as centralized exchanges. In general, you would only need to perform KYC once. However, we're increasingly seeing instances where both exchanges and stablecoin issuers are freezing accounts and demanding additional due diligence about income and funding sources. If they don't like your answers, they close your account but usually return your money.

I believe this is because exchanges and stablecoin issuers are implementing the type of risk-based AML demanded by FATF rules. As time goes on, I expect cryptocurrency service providers to become increasingly careful about who they do business with, for fear of crossing banking and AML regulators.

this is really an Eye opener and i learnt this today. we can collectively say that it is not save to Hold stablecoins because your KYC might be required to claim it back. it is also another way of saying that the stablecoin tokens are centralized.
there are questions begging to be answered here. Are users required to perform KYC once or multiple time to claim their coins? what if the company is not satisfied with the KYC of the coin owner.

bad code, congested network, and unresponsive oracles made the issue worse, but the real problem is DAI's entire model of leveraged ETH-collateralized debt. DAI CDP holders face the same risks that ETH margin traders/lenders do---a flash crash without sufficient bid liquidity = mass defaults. if ETH crashes hard enough, DAI holders are fucked. to save them, MakerDao would have to remove the peg or print MKR tokens and auction them for DAI to cover the shortfall.

it's either not a stablecoin, or it's not decentralized, take your pick. maybe DAI can't be frozen like USDT but it's got its own set of serious problems!

MakerDao was on verge of shutting down with ethereum's recent flat crash, these stable coins are not 'stable' as we think.

Further reading:

1) https://insights.glassnode.com/what-really-happened-to-makerdao/

2) https://www.coindesk.com/defi-leader-makerdao-weighs-emergency-shutdown-following-eth-price-drop

Going to bump this. While bitcoin is volatile(as per usual), take note of the risks you're taking when you're holding stablecoins(and NOT real USD).

Thanks. I knew they were shady, but I didn't know they were THAT bad. Added your message to the main post for more visibility.

That's even worse than I thought, it doesn't show them in a good light and proves they're no better than their competitor Tether with its untrustworthiness. OP should include the info.

The most notable refusals for redemptions have been Gemini and Paxos and in both cases it seems it was at least partly to - “maximize their status on CoinMarketCap.”

https://www.coindesk.com/winklevoss-crypto-gemini-gusd-stablecoin-redemption

https://www.ccn.com/paxos-standard-hassling-ethereum-traders-trying-to-redeem-stablecoin-pax-for-dollars/

Would you want your wealth tied up in something worried about how it looks on some piece of shit website?

When you consider how anal they are about conventional banking the anality will go up by an order of magnitude when it's their 'own' money.

^ I've done the same for the Italian Local Board https://bitcointalksearch.org/topic/possiedi-qualche-stablecoin-usdt-tusd-ecc-ripensaci-5204358

Thank You for sharing this very important information

Best regards

The information in this thread should be shared to spread awareness so I took the opportunity and translated your thread into Croatian for the local community to know.
The link to the translation is here > https://bitcointalksearch.org/topic/da-li-trenutno-posjedujete-stablecoin-e-usdt-tusd-itd-razmislite-jo-jednom-5204334

Thanks again.

True. The next stablecoin with the highest liquidity next to USDT($6.1b volume) is USDC($30m volume). While USDC's volume is far less than USDT's, it's really not THAT bad. As long as you're trading with USDC:bitcoin and not some altcoin(probably besides ETH), you will probably be fine unless you do a huge transaction.

Well, that might just be what they claim. I'm not going to conclude that all these centralized companies that control these centralized stablecoins are evil, but even if they're not, they will have no choice but to obey if the government asks them to do things like freeze funds for whatever reason.

I always been sceptical about stablecoins and I never hold any of these. There is quite many reasons like liquidity, centralization and etc why I don't like it, but I didn't knew that funds can be frozen. So, thank you for posting this stuff. But maybe this thing doesn't looks like something unexpected, because it's centralized cryptocurrency and I don't have any trust in it.
But seeing how big Tether marketcap is, it's worrying thing. Imagine them colapsing one day...

Don't forget the biggest risk of all, which is that of insufficient collateral. We know for a fact that Tether isn't backed up anywhere close to 1-to-1 as they claim, and the fraction of it that is backed up is backed up with a variety of non-cash assets, including assets which don't even exist yet such as interest payments on a loan they made to themselves. Totally not shady.

It usually means that somewhere within the smart contract or code for these stablecoins there already exists a mechanism which allows the centralized entity controlling it to freeze coins or addresses at will.

By freezing means the government will force these centralize entity to edit the smart contracts of these stablecoins?

I wonder what could be done to unfreeze too. Because if it happens that you just converted all your BTC to stablecoin since the prices started to crumble but only to see yourself without funds anymore because the thousands you got are immovable.

I was thinking before that stablecoins can somehow become a safe haven when a bloodbath happens in the market and it can be a good alternative then just converting your coins directly to fiat. But given that they have an "asset freeze" capability and on this scenario where such a bloodbath happens then it is much more scarier to hold stablecoins when they can freeze your crypto at any given time. What if you are trying to cash out your USDT because it is now being affected by the market or it suddenly going down then Tether suddenly decides to freeze everyone's wallet then you are basically screwed.

Stablecoins are a slightly better option than holding fiat on an exchange (assuming one stores them on a hardware wallet), since no one can socially engineer an exchange to perform an account takeover, but it still requires the holder to trust the entities behind them not to go down, not to freeze the stablecoins for spurious reasons, and that it will be possible to exchange them back into BTC or fiat without new requirements (stringent or more onerous KYC, etc.) being introduced in the future.

The fact that they can be stored on a hardware wallet may lull some newbies into a false sense of security, so watch out.

I think only those funds are freezed which are suspected that they are involved in hack or illegal activity. Not sure, but your article hits the brain hard.

Stable coins are the safe one during sudden bear or bull market now need to think on 

one of the problems with these other stable coins is their lack of liquidity and sometimes adoption by exchanges. since one of the usages of the stable coins is for moving funds between exchanges, using Tether is the only option in most cases since the other exchange may not even have anything else. so eventually everyone sticks with the shady option.

Well, yea. It's really debatable. It's pretty much the risks of funds being frozen(centralized stablecoins) versus the price instability and the no guarantee of 1:1 peg(DAI/SAI). It mostly depends on what risk you're willing to take. Personally in the short short term, I'd go with centralized stablecoins like TUSD(because Tether is just too shady). But long term, I'd hold fiat and not neither. I'm still just not 100% convinced with DAI/SAI.

A coin is stable because it is controlled by some authority. You might have heard the tether fud few month back and it was not fully backed by USD. You can trade with these stable coins but never keep your funds in them for long time. If you cannot keep your funds in Bitcoin and want to keep them in USD, go for the fiat which is more reliable than these coins.

Thanks for your post I didn't know until now that those stablecoins has the ability to froze our funds except DAI. It really feels uncomfortable and unsafe holding these stablecoins if it's really true. I will be reading the medium post and look for its basis or source. But I guess it is still safe if you are using it on exchanges for trading. Lools like DAI is a better choice in terms of stablecoins.

There's a lot more risks with stablecoins, and they all stem from their centralization.
The company can be closed by the government if they feel like it doesn't fully comply with regulations, or if they think it threatens their control over the economy.
The company that manages the stablecoin can execute an exit scam or just fail for countless reasons, and the holders will end up with worthless tokens.
The underlying fiat currency can fall in value.
The company can stop their operations in certain countries and freeze the coins of individuals from those countries.
The company can get hacked and attackers may steal coins, customer data or cause other damage.

So far, I've always thought that stablecoins are always anonymous and their owners have full control over them, this is one of my misguided knowledge.
I usually hide my assets in USDT when the market is in a slump, although everything is fine up to now but maybe I should pay more attention to stablecoin holdings.

Ehh, I really don't think it will convince traders in general. It's going to take so much effort to get these kinds of information out there even though it's completely necessary for everyone to know this.

As for day trading, I have no problems with it. You're most likely going to completely be fine as long as you don't hold it for too long. I hold stablecoins for a week in maximum most of the time.

Ah yes. The typical "it hasn't been hacked" reasoning. The same exact thing people said in the past with MtGox and with Bitfinex.

when something is centralized, you must assume that it already has that option or an option similar to that. in short "being centralized" means a third party having full control of the system and you are a simple user of that system they control. and that doesn't stop at stable coins, it will be true about any centralized coin (eg. XRP) or service (eg. centralized exchanges).

unfortunately since nothing horrible has happened yet, people tend to have a false sense of security about stable coins and end up using them in the wrong way such as storing!

I didn't know about the freezing options so thank you for creating this thread. Although I don't usually hold my assets in stablecoins it is good to know.
So for those who need stablecoins it's better to invest in DAI or Tether only on the Liquid platform.

The value of DAI varies. It's normal. I remember reading about DAI a long time ago. When the value of DAI is above $1 there is an incentive to create more DAI, sell it and make a profit. This will then lower the price to the $1 region. When the price is below $1 they do the contrary, they buy more DAI which increases the price. 

I didn't know that stable coin could be froze by the team itself, thanks for the great information.

This will convince the traders to stop holding USDT or other stable coins which has high volume at the moment?

I always suggested to use stable coins to cashout profits from trading and convert them back into decentralized coins sooner after the trend changes on prices but its definitely not a coin to hold on wallets.

Definitely really really unsettling, and knowing the marketcap of Tether(USDT) alone, which is currently at 4.1 billion USD, I'm afraid majority of people don't know the fact that the funds can be freezed, heck, I don't even think that most people know the shadiness of Tether!

The possibility of your assets getting frozen is quite unsettling for holders of any currency and shows how centralized such coins really are. They primarily function as fiat currencies which are run in the blockchain and adhere strictly to all regulatory laws.
An article I found also claimed that some addresses have actually been frozen holding assets of about $41 million
And the exact reason for the freeze was not made public. In my opinion the demerits of stable coins outweigh the merits.

EDIT: Alright. Unexpectedly ended up being quite a slightly long write-up. When I first started writing this I thought it was only going to be a few sentences long. Trust me though, this is quite important information.

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EDIT #2 (July 9, 2020): Let's just say, I told you so?


Article: https://www.coindesk.com/circle-confirms-freezing-100k-in-usdc-at-law-enforcements-request

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I've been wanting to do a quick post here on Bitcointalk a month ago about this, but I lack information on other stablecoins besides Tether(USDT) so I delayed and delayed and delayed the posting further. Thankfully, and coincidentally, someone made a good Medium post about this just days ago, with the chart below.

This might be common knowledge for some, but I'm going to assume that a good number of people still doesn't know this yet. But most stablecoins can be freezed. Yes, even on your wallets. People might think that just because they're holding a certain cryptocurrency stablecoin on their non-custodial wallet, that they're already unseizable.

Well, that's unfortunately really not the case.

Here's a quote from the article: