What to do if your USDT or USDC address is blocked?

Centralised Control Over Issuance and Redemption

Both Tether (USDT) and Circle (USDC) issue stable-coins that are pegged to fiat currencies, such as the US dollar. Although cryptocurrencies are typically decentralised, Tether and Circle maintain centralised control over their stable-coins. This means they have the ability to monitor transactions and freeze or blacklist specific addresses if they detect suspicious or illegal activities.

Reasons for Blocking Addresses

The main reasons Tether and Circle might freeze or block addresses include:

Regulatory Compliance

Both companies are subject to laws and regulations in the jurisdictions where they operate (such as the US). Bulgarian law enforcement authorities are also believed to frequently send freezing requests to Tether and Circle. Financial regulations, such as Anti-Money Laundering (AML) and Know Your Customer (KYC) laws, often require them to monitor transactions and restrict access to users involved in illegal activities (e.g., fraud, terrorism financing, money laundering). They might be ordered by regulators or law enforcement agencies to freeze addresses suspected of engaging in illicit activities.

Preventing Fraud and Scams

Stable-coins like USDT and USDC are frequently used in fraud or scams. If an exchange or platform detects fraudulent activity linked to a specific wallet address, they may freeze that address to prevent further abuse or loss. Unfortunately however, alongside with the criminal transactions, many legitimate addresses are also blocked.

Security Concerns

Sometimes addresses are blacklisted if they are found to be involved in hacking activities, such as theft from exchanges or other illicit operations.

Sanctions Compliance

Tether and Circle are also required to comply with international sanctions imposed by governments. This means that if a wallet is linked to a sanctioned individual or entity, they might block that address to adhere to legal requirements (e.g., US Office of Foreign Assets Control – OFAC sanctions).

Illegal Activities and Money Laundering

If an address is associated with money laundering or any form of illicit financial activity, the issuer of the stable-coin may block it to prevent further movement of funds.

How Addresses Get Blocked or Frozen

Both Tether and Circle have blacklist databases that are continually updated. These lists can include addresses that have been flagged for illegal or suspicious activity. When an address is flagged, the respective company can:

• Freeze the address, preventing the owner from withdrawing or transferring the tokens.
• Blacklist the address, preventing any new tokens from being issued or accepted into that wallet.

Both companies (Tether and Circle) can track the movement of stable-coins on the blockchain, allowing them to monitor wallet balances and transactions. While the blockchain is public, the companies can also use their centralised infrastructure to track individual wallets tied to real-world identities, especially when linked to exchanges and KYC-verified accounts.

Tether (USDT) vs Circle (USDC)

So who is blocking addresses more often? Tether or Circle?

Tether has been criticised for its lack of transparency and its controversial freezes on addresses. The company has had legal issues in the past and has been pressured to provide more clarity on its reserves and operations.

Circle, on the other hand, has a more transparent approach, with a strong emphasis on regulatory compliance. It has consistently stated its commitment to adhering to the rules and ensuring that its USDC token is fully compliant with the law.

How to Avoid Address Blocking

Users can minimise the risk of having their addresses blocked by:

• KYC and AML Compliance: Ensuring that their activities comply with regulatory requirements by using exchanges and platforms that enforce KYC (Know Your Customer) and AML (Anti-Money Laundering) policies.
• Privacy and Security: Using decentralised platforms and ensuring that their wallets and transactions are secure and legal. However, it’s important to be aware that compliance with regulations is still necessary for avoiding complications with centralised issuers like Tether and Circle.

Conclusion and how can we help

The ability of Tether and Circle to freeze or block addresses is a centralised mechanism designed to ensure regulatory compliance, prevent illegal activities, and protect the stability of the stable-coin market. While this practice goes against the decentralisation ideals of cryptocurrencies, it is a response to regulatory and legal pressures that these companies face.

We believe to be the only company in Bulgaria, who understand the local AML regulations to an extend that can convince Tether and Circle that the legal requirements are met so they can unfreeze the frozen addresses. This is not an easy process however, not at all. But with the support of our lawyers, the task becomes feasible. Please contact us immediately if you believe that your stable-coin address has been unlawfully frozen by Tether or Circle.