[UPDATED] PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets

[mk4]

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.

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.

[Wasser12]

Posted on the Beginners & Help section instead of the Trading Discussion section as for this to hopefully be seen by some people who hold stablecoins for longer amounts of time.

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.


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


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:

Asset freeze
In order to remain compliant with regulators, many stablecoin issuers have introduced blacklists so that they can freeze the stablecoins held at specific addresses. This ability is also particular useful in the case of hacks, but it means that the trust we must place in the issuer to not act maliciously is that much greater.

Link to article

While as far as I know(correct me if I'm wrong) we haven't read anything anywhere about a certain crypto person's stablecoins getting freezed(besides the ones in the linked article), it's really not impossible from happening. It just might be the matter of 'when' we're going to see someone get their stablecoin funds frozen.

Table from the same Medium article

Increased regulations

It really won't be surprising if the government of whatever country(not only in the United States) sometime in the future began to crack down and become A LOT more stricter when it comes to bitcoin and cryptocurrencies in general. Is it possible for the government to ask these centralized entities to freeze the stablecoin funds of certain(or all) holders and demand KYC/AML information? Definitely really really possible(in my opinion at least). In fact, I think that there's a high likelihood of this happening sometime in the future.

Single Collateral DAI(SAI) and Multi-Collateral DAI(DAI)

Besides USDT on the Liquid network(which isn't really THAT accessible right now, hopefully in the future), the DAI/SAI stablecoin, which is both from the MakerDAO project, are the only stablecoins on the list that's unfreezable as you may see. It's definitely a very interesting project and is working fine at the moment; but remember that it's FAR from perfect. In fact, not even close. While historically, in it's almost 2 years of existence, it's value stayed really close to $1, which is good, but there were times that it's price pumped to $1.06 and as low as $0.95, which is definitely something that you wouldn't want in a stablecoin.

Also, not because DAI/SAI are unfreezable right now, it doesn't automatically mean that it will be like this forever. Remember, there's still a single core team working on this project, and they can easily change the code today if they wanted or needed to. Not because they're bad people per se, but they might need to comply to government's requirements sometime in the future.

Source: https://coinmarketcap.com/currencies/single-collateral-dai/

Final thoughts

I'm not saying that you should hold stablecoins, but I think that people just need to be more aware of the risks they're taking when holding completely centralized stablecoins and sort of "semi-decentralized" stablecoins. Remember, while "semi-decentralized" stablecoins might be the right choice, remember that black swan events can really cause it to have it's price either rise or crash. So if possible, it'd probably be a better idea to hold actual non-crypto USD. Use this information for your own benefit, Bitcointalk peeps. In the end, what you hold still completely depends on you. If something happened sometime in the future, don't say I didn't warn ya.  


EDIT: Just to add more information:

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.

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

[mk4]

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

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.

[pawanjain]

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 ?

[pooya87]

I have read cases where crypto holders' bank accounts had been frozen in my country.

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.

[Despairo]

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

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.

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.

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.

[pawanjain]

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

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.

This thread shines some light on DAI but it also says that even DAI has different risks to be considered.

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.

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.

Yeah that's right but as pooya87 mentioned it's not with all the banks and all the customers.
I think the best thing to do would be to diversify in a way where we can hold stable coins, hold some in fiat etc..
At least it would diversify the risks.

[mk4]

"Circle freezes USDC funds in Tornado Cash's US Treasury-sanctioned wallets"

Yea, expect things to get worse from here. Stablecoins are great, but don't trust them too much.

https://www.theblock.co/post/162172/circle-freezes-usdc-funds-in-tornado-cashs-us-treasury-sanctioned-wallets

[crwth]

https://www.theblock.co/post/162172/circle-freezes-usdc-funds-in-tornado-cashs-us-treasury-sanctioned-wallets

Since Tornado Cash has been "allegedly" involved in high-profile hacking, they are definitely out to be frozen with their USDC wallets.

With things like these, you wouldn't have to worry about it if you are not money laundering or the source is clean. I'm not sure how you can prevent unnecessary hiccups if you were to receive one or something.

[crwth]

https://www.theblock.co/post/162172/circle-freezes-usdc-funds-in-tornado-cashs-us-treasury-sanctioned-wallets

Since Tornado Cash has been "allegedly" involved in high-profile hacking, they are definitely out to be frozen with their USDC wallets.

With things like these, you wouldn't have to worry about it if you are not money laundering or the source is clean. I'm not sure how you can prevent unnecessary hiccups if you were to receive one or something.

Have you considered the sanction might hurt bystander? Even CNBC write an article about it[1]. Additionally, how sure source of your USDC (or other centralized token/coin) is clean when you don't receive it from regulated exchange or the company itself?

Thanks for the resource. It's definitely going to be a problem for innocent people to be hurt by it as well. It's the fault of Tornado Cash and they would be the ones responsible for it. I do hope that they find a way to clear users and separate those who have dirty and clean funds.

[mk4]

Since Tornado Cash has been "allegedly" involved in high-profile hacking, they are definitely out to be frozen with their USDC wallets.

With things like these, you wouldn't have to worry about it if you are not money laundering or the source is clean. I'm not sure how you can prevent unnecessary hiccups if you were to receive one or something.

Tornado Cash is a mixing protocol that people in general use, of course hacker entities in various sizes would use it. You don't necessarily need to be a money launderer to want privacy lmao.

[Charles-Tim]

Thanks for the resource. It's definitely going to be a problem for innocent people to be hurt by it as well. It's the fault of Tornado Cash and they would be the ones responsible for it. I do hope that they find a way to clear users and separate those who have dirty and clean funds.

After reading the link by MK4 above, it means even innocent people are going to be affected. Some bad actors are making use of mixers, while some good people can also make use of it for privacy reasons. I am just thinking if I fall victim of this, that would be when I will know more that having full control over my own asset is so much important.

Just that many people are ignorant that many stable coins can be freezed. Satoshi created bitcoiin for privacy reason and for people that have it to have full control over their own asset (bitcoin). But after bitcoin was created, are other projects which belong to centralized organisations that are moving crypto that should be decentralized towards centralization. But bitcoin remain decentralized and acceptable.


Quote from:
https://www.theblock.co/post/162172/circle-freezes-usdc-funds-in-tornado-cashs-us-treasury-sanctioned-wallets

Among these addresses is Tornado Cash’s USDC pool, meaning those with USDC deposited on Tornado Cash may be unable to withdraw their funds.

[mk4]

After reading the link by MK4 above, it means even innocent people are going to be affected. Some bad actors are making use of mixers, while some good people can also make use of it for privacy reasons. I am just thinking if I fall victim of this, that would be when I will know more that having full control over my own asset is so much important.

Just that many people are ignorant that many stable coins can be freezed. Satoshi created bitcoiin for privacy reason and for people that have it to have full control over their own asset (bitcoin). But after bitcoin was created, are other projects which belong to centralized organisations that are moving crypto that should be decentralized towards centralization. But bitcoin remain decentralized and acceptable.


Quote from:
https://www.theblock.co/post/162172/circle-freezes-usdc-funds-in-tornado-cashs-us-treasury-sanctioned-wallets

Among these addresses is Tornado Cash’s USDC pool, meaning those with USDC deposited on Tornado Cash may be unable to withdraw their funds.

If anything, the shutting down of Tornado Cash's website actually hurts the everyday person and not the hackers. The authorities just shut down the website, but the smart contract is still live and running on the blockchain. The tech-savvy hackers can just use tornado cash via command line lol.

[dkbit98]

Yea, expect things to get worse from here. Stablecoins are great, but don't trust them too much.

Stablecoins are not great but they could be useful temporary if they are decentralized, and they are not.
All stablecoins are controlled by central authority, and most algorithm bases stablecoins failed in this bear market and showed they are unusable.
Fake decentralized stablecoins like DAI are also dependent on USDC, so I wouldn't trust any stablecoins at this point.
One potential solution could be USD on Lightning Network (Stablesats) because there is no token, but there is moment of risk when BTC is swapped for Stablesats using centralized exchanges.

[mk4]

Stablecoins are not great but they could be useful temporary if they are decentralized, and they are not.
All stablecoins are controlled by central authority, and most algorithm bases stablecoins failed in this bear market and showed they are unusable.

Probably not great if you already have access to the USD to start with. Great for people who have shitty fiat currencies and want to gain exposure to a less-shitty currency such as the USD.

[sima_sara]

If you have received bitcoin from selling a property, and you want to convert it to tether, because you want to keep the value; how likely it is for that tether to be frozen?     Tether is staying in the same wallet where bitcoin was received.

would the case be different if I use USDC?

Would you trust Dai?

[mk4]

Just in: Tether freezes FTX's USDT holdings

https://cointelegraph.com/news/report-tether-freezes-46m-of-ftx-s-usdt-on-tron-blockchain-setting-new-precedent

If you have received bitcoin from selling a property, and you want to convert it to tether, because you want to keep the value; how likely it is for that tether to be frozen?

Unlikely especially if you're just a small player, but definitely not impossible.

Tether is staying in the same wallet where bitcoin was received.

You can only hold USDT on Ethereum/Solana/BNB wallets.

would the case be different if I use USDC?

More likely with USDC as they're more regulatory compliant as far as I know.

Would you trust Dai?

DAI can't be frozen, but DAI poses different risks(mostly depegs) as DAI is backed by ETH/USDC/etc. Totally up to you to weigh in the risks.

Also, I'm not sure if you can actually get away with selling property and not declaring the sale.

[o_e_l_e_o]

how likely it is for that tether to be frozen?

The risk is non-zero, which is too high.

would the case be different if I use USDC?

Nope.

Would you trust Dai?

Nope.

If I wanted to hold bitcoin, I'd keep my payment in bitcoin. If I didn't want to hold bitcoin, I'd convert some or all of the payment to fiat. I wouldn't touch any of these centralized scam coins, especially not for a large value purchase such as property.

[Pmalek]

You can only hold USDT on Ethereum/Solana/BNB wallets.

You forgot about the most popular network for Tether which is Tron. I have honestly never heard of anyone accepting USDT over Solana's blockchain, especially if we take into account that its network has a history of downtimes. The fees over Ethereum were often quite big, which caused people to migrate more and more towards Tron.

o_e_l_e_o makes a good point. Holding USDT makes no sense if you have a way to swap your bitcoins for fiat.

[Rikafip]

If you have received bitcoin from selling a property, and you want to convert it to tether, because you want to keep the value; how likely it is for that tether to be frozen?

What I don't understand is how exactly you plan to keep the value by staying in tether? Or you maybe meant that currency in your country is not stable enough so you would rather prefer currency that is pegged to dollar? Anyway, getting your USDT frozen is not the only danger as there is a chance of depeging as well and those two things make it a bad good choice for longer hodl.