In mid-December 2024, the power boundaries between U.S. regulators and Tether, the issuer of USDT, regarding "frozen addresses" have once again come to the forefront. From earlier sanctions against Tornado Cash-related addresses to recent discussions surrounding legislative progress on the "Responsible Financial Innovation Act," this series of actions is reshaping the compliance framework for crypto dollars and providing new legal and policy coordinates for the frequent freezing of USDT addresses.

Regulatory Evolution: From Tornado Cash to USDT Freezes

● News-Driven: The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) added Tornado Cash smart contract addresses to the sanctions list in August 2022, marking the first direct sanctions against "code/contracts" and indicating a shift in regulation from traditional financial accounts to on-chain protocol levels.

● Legal Anchors:
- The core legal tools relied upon by OFAC are the International Emergency Economic Powers Act (IEEPA) and related sanctions executive orders, which allow for asset freezes against entities and individuals "supporting money laundering, terrorist financing, or evading sanctions."
- In the Tornado Cash case, regulators viewed "smart contract addresses" as sanctionable targets, sparking intense debate in the industry over the boundaries of code free speech and sanctioning authority.

● Spillover Effects on USDT:
- After Tornado Cash was added to the SDN list, several U.S. compliance institutions and service providers quickly blocked addresses interacting with it, including front-end access restrictions and RPC service filtering.
- The issuer of USDT, Tether, gradually expanded its internal blacklist mechanism to freeze addresses that were sanctioned, involved in significant criminal cases, or subject to law enforcement requests, with the number of frozen addresses on-chain increasing from hundreds in the early days to thousands later on (the specific number varies under different statistical criteria).

● Law Enforcement Collaboration Pathways:
- Agencies such as the U.S. Department of Justice, FBI, and IRS Criminal Investigation (IRS-CI) often communicate directly with issuers like Tether regarding cross-border fraud, hacking attacks, and ransomware cases, requesting assistance in freezing related assets.
- Research Brief mentions that several incidents involving tens of millions of dollars in on-chain thefts have seen USDT being urgently frozen, reflecting a collaborative logic of "technical feasibility + regulatory encouragement."

Legislation and Power Boundaries: Who Can Request Tether to Freeze?

● Core Power Entities:
- U.S. Department of the Treasury (including OFAC, FinCEN): Holds significant authority over involved parties and fund flows under the frameworks of sanctions, anti-money laundering, and suspicious transaction reporting.
- U.S. Department of Justice (DOJ) and the federal court system: Can require freezing, seizing, or other measures against specific addresses or assets through criminal prosecutions, forfeiture orders, and court directives.
- Congressional Legislation (both Houses): Defines which federal agencies have direct or indirect regulatory authority over "crypto dollar issuers" through comprehensive crypto asset regulatory bills.

● Positioning of the "Responsible Financial Innovation Act":
- The Brief notes that this act was proposed by bipartisan senators and aims to establish a unified framework for "digital assets," clarifying the asset classification and regulatory division between the SEC and CFTC.
- In the sections related to USDT, the focus of the bill discussions includes:
- The distinction between "payment-type crypto assets" and "investment contract tokens";
- Directional discussions on whether issuers should fall under payment system or deposit-type regulatory frameworks;
- Providing a clearer enforcement basis for the DOJ and Treasury in cross-border payments and anti-money laundering.

● Prohibition of Speculative Clause Boundaries:
- The Brief explicitly prohibits detailed descriptions of the specific amendment clauses, itemized content, and meeting dates of the act, thus only allowing for a macro-level summary from the perspective of "regulatory power division."
- It can be confirmed that Congress intends to reduce regulatory gray areas and inter-departmental disputes through framework legislation, allowing issuers like Tether to have clearer expectations regarding "who can regulate and to what extent."

● Indirect Restructuring of Freezing Authority:
- Once Tether is more clearly classified under a specific regulatory track (such as "payment type" or "issuers licensed by specific federal agencies"), its processes for:
- Accepting freeze order procedures;
- Compliance review and reporting obligations;
- Information-sharing mechanisms with law enforcement;
will tend to become institutionalized and standardized, rather than the current loose state dominated by "contractual authority + case-by-case communication."

USDT Freezing Logic: Technical Authority and Compliance Reality

● Contract Layer Capabilities:
- USDT employs a blacklistable contract design across multiple chains like Ethereum, allowing Tether to mark specific addresses as "blacklisted" through multi-signature management addresses, thereby:
- Preventing that address from transferring USDT;
- Refusing new minting or transfers related to blacklisted addresses.
- This freezing mechanism is embedded in the contract, serving as an important technical foundation for USDT's compatibility with traditional financial regulation and is one of the key reasons regulators are more inclined to collaborate with USDT.

● Typical Trigger Scenarios for Freezing Determination:
- Formal requests from law enforcement: Involving hacking attacks, ransomware, cross-border fraud, and large Ponzi scheme cases, often with amounts ranging from millions to tens of millions of dollars.
- Sanctions list synchronization: When OFAC updates the SDN list or issues announcements regarding specific organizations (such as those identified as terrorist organizations or agents of sanctioned countries), Tether typically updates its contract blacklist within a certain timeframe.
- Internal risk control and exchange feedback: Major compliant exchanges and on-chain analytics firms report suspicious fund flows to issuers and regulators, forming an intelligence exchange chain between the private and public sectors.

● Data Support and Scale Perception:
- Research Brief cites third-party statistics showing that the number of addresses blacklisted for USDT across multiple public chains has accumulated to thousands, with frozen amounts reaching the hundreds of millions of dollars.
- Although this freezing ratio remains below single-digit percentages compared to USDT's total circulation exceeding $90 billion (data from mid-2024), in individual cases, it is often sufficient to alter the recovery paths and arbitrage opportunities for criminals.

● Controversy Over Technical Neutrality:
- Supporters argue that in the current global anti-money laundering and sanctions environment, "the ability to freeze" is a prerequisite for USDT's regulatory tolerance and institutional adoption;
- Critics point out that this brings USDT closer to "on-chain bank deposits" rather than decentralized assets, with users bearing the risk of being mistakenly affected or subject to procedural abuse, while the relief pathways are not transparent.

Bull-Bear Game: Is USDT Freezing a Compliance Advance or a Decentralization Setback?

● Optimistic/Supportive View:
- They believe the USDT freezing mechanism is a necessary stage for the industry to integrate into the mainstream financial system:
- It helps combat hackers, fraud, and ransomware, enhancing the overall crypto ecosystem's "legitimate fund density";
- It is beneficial for attracting more institutions and compliant funds, as they prefer using "traceable, freezeable" crypto dollar tools;
- With the future enactment of legislation and clearer regulatory frameworks, USDT is expected to become part of cross-border clearing and on-chain payment infrastructure.

● Pessimistic/Opposing View:
- They worry that the USDT freezing logic leads to over-concentration of power and potential abuse:
- Issuers can freeze assets of specific users without transparent judicial processes, making it difficult for users to appeal in a timely manner;
- If the U.S. becomes more aggressive in using the "financial sanctions + technical freeze" combination as a geopolitical weapon, ordinary users may also be affected;
- The narrative of decentralization is weakened: when the most mainstream crypto-denominated unit essentially submits to a single sovereign judicial framework, the so-called space for "borderless finance" is significantly compressed.

● Neutral Observational Perspective:
- Research Brief mentions that several on-chain analysis firms tracking USDT freeze cases found that the vast majority of frozen addresses are highly correlated with known criminal activities, which somewhat alleviates the public pressure regarding "abuse."
- However, in the long run, how to draw the line between compliance needs and personal rights protection still relies on more comprehensive legislation and transnational judicial cooperation mechanisms, rather than solely on the internal rules of a single issuing entity.

Outlook: Changes in USDT's Role Before and After Regulatory Maturation

In the short term, the market will focus on the pace of the U.S. Congress in advancing comprehensive digital asset legislation such as the "Responsible Financial Innovation Act" over the next year, as well as how the Treasury and Justice Departments continue to utilize USDT freezing as a "new tool" in major on-chain cases. Once the regulatory framework further matures, USDT is likely to evolve from its current state of "technically freezeable, relatively ambiguous in rules" to operating under clear regulations and standardized procedures as a "regulatory-friendly crypto dollar." This will enhance its position in cross-border payments and institutional settlements but will also highlight the tension between it and the ideals of "decentralized finance." For ordinary users, understanding the regulatory logic and power boundaries behind USDT will become a necessary competency for future participation in the crypto market, rather than optional knowledge.

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