Tether won’t freeze funds linked to Tornado Cash until the law steps in

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Tether, the issuer of crypto’s largest stablecoin USDT, stated this week that it won’t freeze funds associated with OFAC-sanctioned addresses unless specifically instructed to do so by law enforcement.

The company has a chequered history and has come under near-constant scrutiny over the assets backing its flagship stablecoin. Despite this, USDT has grown to be the industry’s de-facto digital dollar, with a market cap of almost $70 billion, down from a high of over $80 billion before the two early summer crypto market crashes.

Now, Tether’s decision not to freeze USDT in addresses linked to the anonymity tool Tornado Cash stands out when compared to many other entities who rapidly implemented blacklists.

While Tether and its closest rival Circle — which immediately froze funds directly on-chain — blacklist at the contract level, most projects are simply applying blacklists to the front-end. This seems unlikely to deter dedicated money-launderers or blackhat hackers, given that the underlying smart contract functionality remains unaffected.

Since the sanctions, many projects have been accused of over-compliance by privacy advocates. Blocked addresses reportedly include whitehat hackers, victims of hacks, and those targeted by “dusting” attacks simply due to their proximity to the banned addresses.

However, it’s clear why so many are keen to stay far away from any perceived sanctions violation. The arrest of Tornado Cash developer Alexey Pertsev in the Netherlands appears to have rattled the commitment to anti-censorship of other devs in the industry.

Read more: Algorithmic stablecoin collapse may crash crypto markets again, says IMF

Tether opting to hold off on freezing funds is as close as any large player has come to taking a stand against the sanctioning of a privacy tool used by many legitimate users to protect privacy. 

That being said, this week’s statement stresses the close relationship the company has with law enforcement and, if instructed to freeze addresses, Tether’s compliance does not seem in doubt.

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