Tether to Freeze Sanctioned Crypto Wallets
Tether's engagement with U.S. authorities has notably intensified. The latest move, as of April 2024, involves the company's decision to block USDT addresses associated with Venezuela's oil deals.
Tether, the issuer of the largest stablecoin USDT, has announced plans to freeze addresses tied to entities subject to U.S. sanctions. This step aims to thwart efforts by Venezuela's state-owned oil company PDVSA, currently under U.S. sanctions, to bypass regulations through cryptocurrency transactions.
However, companies collaborating with PDVSA couldn't directly use their crypto wallets. Consequently, when the U.S. issued a six-month license in October 2023 to resume business with Venezuela, PDVSA's clients sought assistance from intermediaries.
Despite the sanctions, Oil Minister Tellechea announced that after the 45-day period of ending cooperation with PDVSA, Venezuela would continue encouraging its clients to apply for individual licenses for trading with PDVSA.
In December of the same year, Tether blocked 41 crypto wallets controlled by individuals on OFAC's specially designated list. Notably, one of these wallets was linked to the attack on the Ronin Bridge, estimated to have caused $625 million in damages.
The stablecoin is a centralized asset. Despite operating on Ethereum, Tron, and other blockchains, its fundamental nature remains unchanged: Tether can mint (issue) and burn (destroy) USDT for any address.
The USDT smart contract contains the "AddedBlackList" function, allowing specific addresses to be added to a blacklist. Once an address is added to this list, all USDT held within the associated wallet becomes effectively frozen. As of April 2024, there are 1428 addresses on this blacklist.
According to anonymous sources, PDVSA's adoption of USDT is part of a broader strategy to mitigate the impact of renewed U.S. sanctions. They require PDVSA's clients and service providers to cease all business dealings with the company by May 31.
According to Reuters, PDVSA has been integrating USDT for oil payments since 2023. The recent reinstatement of sanctions may expedite this adoption, enabling PDVSA to sustain its trading activities while reducing the risk of asset seizure by U.S. authorities.
By the end of the first quarter of 2023, PDVSA had shifted a significant portion of its spot deals to a contractual model. This new approach entailed prepaying half of the cargo's value and using cryptocurrencies.
However, companies collaborating with PDVSA couldn't directly use their crypto wallets. Consequently, when the U.S. issued a six-month license in October 2023 to resume business with Venezuela, PDVSA's clients sought assistance from intermediaries.
Despite the sanctions, Oil Minister Tellechea announced that after the 45-day period of ending cooperation with PDVSA, Venezuela would continue encouraging its clients to apply for individual licenses for trading with PDVSA.
Tether Adheres to OFAC Requirements
Tether has confirmed its commitment to complying with the sanctions imposed by the Office of Foreign Assets Control (OFAC) against specially designated nationals (SDNs).
“Tether respects the OFAC SDN list and is committed to working to ensure sanctioned addresses are frozen promptly,” a company representative stated.
Previously, Tether has actively assisted in complying with OFAC sanctions. In October 2023, the company blocked funds from 32 wallets associated with terrorism, and wars in Israel and Ukraine, totaling 873,000 USDT.
In December of the same year, Tether blocked 41 crypto wallets controlled by individuals on OFAC's specially designated list. Notably, one of these wallets was linked to the attack on the Ronin Bridge, estimated to have caused $625 million in damages.
How Tether Freezes USDT
As of April 2024, USDT stands as the largest stablecoin with a market capitalization of $110 billion. USDT is issued by Tether and pegged to the value of the U.S. dollar.
The stablecoin is a centralized asset. Despite operating on Ethereum, Tron, and other blockchains, its fundamental nature remains unchanged: Tether can mint (issue) and burn (destroy) USDT for any address.
The USDT smart contract contains the "AddedBlackList" function, allowing specific addresses to be added to a blacklist. Once an address is added to this list, all USDT held within the associated wallet becomes effectively frozen. As of April 2024, there are 1428 addresses on this blacklist.
Statistics on Blocked Tether Addresses. Source: dune.com
Moreover, Tether can burn USDT using the "destroyBlackFunds" function. This feature allows Tether to remove a specified amount of USDT from circulation for any blacklisted address.
In addition to burning, Tether can also mint new USDT for specific addresses.
Conspiracy Theories Surrounding Tether's Collaboration with OFAC
Speculation runs rampant in the crypto community regarding Tether's purported collaboration with U.S. authorities, supposedly under duress. Conspiracy theorists assert that the company's actions are motivated by a desire to shield itself from potential regulatory issues with the SEC and other law enforcement bodies.
However, Tether offers a different explanation for its cooperation with authorities:
“…we will be able to further strengthen the positive usage of stablecoin technology and promote a safer stablecoin ecosystem for all users,” explains Tether CEO Paolo Ardoino.
While some crypto enthusiasts view these developments skeptically, they play a crucial role in fostering wider cryptocurrency adoption. Newcomers to the crypto world often wonder, "Does the government influence this tool?"
