Stablecoin censorship

[Abiky]

Have you ever found yourself a victim of stablecoin censorship? There are records of stablecoin issuers freezing or limiting access to stablecoin funds they deem suspicious. To my knowledge, both Bitfinex (issuer of Tether/USDT) and Circle (issuer of USD Coin/USDC) have been doing this for quite a while. If these entities do the exact same thing banks do, why are stablecoins rising in popularity? Investors could lose it all in an instant without even knowing it (unless they check the blockchain, of course).

See for yourself proof of stablecoin censorship here: https://dune.com/phabc/usdt---banned-addresses

And here: https://dune.com/phabc/usdc-banned-addresses


Thoughts? 

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[nelson4lov]

Stablecoins play an important role in the DeFi industry and helps immensely with liquidity of decentralized finance industry. However, the quirk you mentioned is particular to just centralized version of stavle coins. I feel like they do this in order to stay complaint with regulations.

A decentralized stablecoin like DAI doesn't have these type of mechanisms built in for censoring addresses.

The best thing to do is to not do anything with centralized stablecoin that would trigger addition to the blacklist or just use a decentralized stablecoin like DAI. Most of the addresses in those blacklists are addresses that contain hack funds.

[vv181]

Pretty much because they feel they did nothing wrong, so they just simply use it. We know that address censoring usually happens because there is a report of hacks-related funds or other illegal activities.

The deeper question is, does there are cases where stablecoins addresses are wrongly flagged? For example, the user did nothing wrong or illegal, but they got censored. If there are many cases as such, certainly, it won't achieve the current popularity. But if there isn't any or extremely rare, users would simply use it because there is a utility or use case. The possibility of censorship won't be a problem for them.

[Coyster]

If these entities do the exact same thing banks do, why are stablecoins rising in popularity? Investors could lose it all in an instant without even knowing it (unless they check the blockchain, of course).

Stable coins are centralized and the issuers basically control everything about it, they can print as much as they want (even if it is backed by nothing), or they can freeze it in their customers' wallets if they have a reason to. Stable coins are growing in popularity because some people are ignorant of the risks that are associated with it, whilst others use it because they have to (especially traders). The thing is, irrespective of your reason for using stable coins; you should not hodl it for the long term, use it for whatever purpose you want and sell it for Bitcoins immediately after.

[o48o]

-cut-
Thoughts?  

If you get your stablecoins frozen you have been using laundered or stolen money, you are a terrorist organization or a black listed person. They don't just freeze joe nobody's money.

And stablecoins are rising popularity is because it's easy to use them for trading in dexes. You can't do that with normal fiat money.
Sometimes it's just practical to convert into something less volatile like value of usd. Sure it's centralized but so is real fiat money. If you want to use money that's not going to be frozen, there still are decentralized currencies out there. But even those can be frozen in CEXes.

[riantolie]

I wasn't. I never held stables for a long time, I've been only using them for some stuff. And I've heard how they froze only accounts of criminals.

[Dave1]

I'm not really sure why they banned those address, however, I'm thinking that it could be link so darkweb or hacks or anything that harm anyone or crypto in general that's why they got it banned.

However, if you think that you are not doing anything wrong and you have a clean address then on my side, you don't need to be concern about stablecoin censorship. Unless they are like doing a witch hunt or something and just ban any addresses they like or find that suit their banning criteria.

[Husires]

Because they do not ban the movements of individuals as banks do, but rather ban major events such as hacking platforms, money laundering, and cross-border charges, but I do not remember hearing the news of freezing an individual account, despite their ability to do so.
If you are very concerned about this matter, use DAI. It is decentralized and no one can freeze the money in your account, but the possibility that its price is not $1 remains the biggest problem.

https://bitcointalk.org/index.php?topic=5204055.0

stablecoins except DAI can be frozen even if they are in your wallet.

[AnonBitCoiner]

Because they do not ban the movements of individuals as banks do, but rather ban major events such as hacking platforms, money laundering, and cross-border charges, but I do not remember hearing the news of freezing an individual account, despite their ability to do so.

That's a point and difference between banks and crypto. I think CEX is not doing any bad here because If dark money used in their exchange then CEX will be responsible for it and also will be blame. This is part of regulatory system. Freezing individual accounts happened so many times but this is just temporary and will back to the normal when user pass investigation process.

If you are very concerned about this matter, use DAI. It is decentralized and no one can freeze the money in your account, but the possibility that its price is not $1 remains the biggest problem.
stablecoins except DAI can be frozen even if they are in your wallet.

That's mean our stable coin other than DAI is not safe and what is about Dai on other networks such as Polygon, bsc. Dai is Ethereum network coin and we have to pay high fee. It's pigged tokens is available in other networks.. If we hold in matic , our coins could freeze?

[Husires]

If you are very concerned about this matter, use DAI. It is decentralized and no one can freeze the money in your account, but the possibility that its price is not $1 remains the biggest problem.
stablecoins except DAI can be frozen even if they are in your wallet.

A user account on a platform is different from a deposit address in a wallet. I meant the possibility of freezing coins if you withdraw them to your wallet, which is what happened several times after bridges or CEXs were hacked.
Inside the platform, you do not own your coins, but the money is controlled by the platform.

That's mean our stable coin other than DAI is not safe and what is about Dai on other networks such as Polygon, bsc. Dai is Ethereum network coin and we have to pay high fee. It's pigged tokens is available in other networks.. If we hold in matic , our coins could freeze?

Yes, DAI cannot be frozen by the wallet or inside your wallet because it is decentralized. There is a group of auditors and you can contribute to the decentralization of the network if you have a lot of money and buy MakerDAO. The only problem is that its price may not always be equal to one dollar, which is a problem with all stablecoins.

[noorman0]

-snip-
If these entities do the exact same thing banks do, why are stablecoins rising in popularity?

Because they are less monitored than the reserves themselves, so far I have not found a case of stablecoin freezing below $5k even though it was proven to be the proceeds of crime.

Whoever doesn't want to deal with annoying bureaucracy just for a small transaction value, stablecoin can solve that. Meanwhile, what we know is that fintech services like Paypal can suspend your money even for $5 and they mark your bank account too.

[danherbias07]

There's a chance these are bad addresses. I am assuming.
Think about it, they are a centralized business so they cannot just close down any count without proper reason on why they did it. It will mean their business will get a bad reputation if proven that they are holding down or freezing accounts without any good reason at all.
I don't disagree with stablecoins but I don't use the popular ones like USDT. If I have to pick a stablecoin I'd rather be in BUSD and I did a lot of transactions there when I was still playing DeFi games and NFT games so because I didn't have any problem using it I will just stick with them.
Anyway, it's centralized so we cannot expect much when it comes to protecting our privacy.

[fzkto]

-snip-
If these entities do the exact same thing banks do, why are stablecoins rising in popularity?

Because they are less monitored than the reserves themselves, so far I have not found a case of stablecoin freezing below $5k even though it was proven to be the proceeds of crime.

Whoever doesn't want to deal with annoying bureaucracy just for a small transaction value, stablecoin can solve that. Meanwhile, what we know is that fintech services like Paypal can suspend your money even for $5 and they mark your bank account too.

Of course stablecoins is much more convenient than transferring electronic cash through third party services like PayPal. The chance of freezing your funds is also very low. But you need to realise that stablecoins are a surrogate for the dollar and at one point it may all become illegal.

[goaldigger]

They are not attacking normal account, and they are just protecting their own people from a possible fraud or money laundering, seriously most of those stablecoin censorship are from a suspicious account and the exchanges have the right to do their investigation about your money. Well, stablecoin are still better compare to the banks and those exchanges are just executing their rules and regulations, aside from that I didn’t see any problem as long as they are doing it in process.

[Husires]

Because they are less monitored than the reserves themselves, so far I have not found a case of stablecoin freezing below $5k even though it was proven to be the proceeds of crime.

you can losing your entire balance, as happened with LUNA, or it may happen if the legal restrictions on these stable currencies are tightened, especially since we all know that they do not possess any reserves that would allow them to print more of these coins.
These are opposite things. If the stablecoin has a large market capacity, regulatory restrictions will increase on it, which may mean freezing even small deposits, and the stablecoin with a small market capacity does not have enough reserves to maintain the value of one dollar.

[Xal0lex]

I've never encountered it, but I always try to protect myself from being subjected to blocking a substantial amount of my stablecoins. I always buy stablecoins on different services and use multiple addresses to do so. Never store centralized stablecoins on a single address, otherwise one questionable interaction with a service can result in the entire amount being blocked. Censorship and regulation in the crypto environment is constantly increasing, so you need to use risk diversification.

[EFS]

If you get your stablecoins frozen you have been using laundered or stolen money, you are a terrorist organization or a black listed person. They don't just freeze joe nobody's money.

And stablecoins are rising popularity is because it's easy to use them for trading in dexes. You can't do that with normal fiat money.
Sometimes it's just practical to convert into something less volatile like value of usd. Sure it's centralized but so is real fiat money. If you want to use money that's not going to be frozen, there still are decentralized currencies out there. But even those can be frozen in CEXes.

And who decides who is terrorist and who is not? Some states see the organizations as terrorists and others see same ones as heroes. The perspectives of people and countries may vary depending on their stand. Who can declare someone guilty without a fair trial?
This is one of the biggest problems of centralized systems. I trust stablecoins as much as I trust national currencies, maybe even less.

[OgNasty]

I really don’t understand why someone would hold a stablecoin instead of cash. It’s like you get additional regulatory risk on top of the typical crypto risk while also eliminating the ease of spending that USD has and the big topper is that you won’t ever get any appreciation like with other crypto. It’s the worst of all worlds.

[Abiky]

Stablecoins play an important role in the DeFi industry and helps immensely with liquidity of decentralized finance industry. However, the quirk you mentioned is particular to just centralized version of stavle coins. I feel like they do this in order to stay complaint with regulations.

A decentralized stablecoin like DAI doesn't have these type of mechanisms built in for censoring addresses.

The best thing to do is to not do anything with centralized stablecoin that would trigger addition to the blacklist or just use a decentralized stablecoin like DAI. Most of the addresses in those blacklists are addresses that contain hack funds.

Decentralized stablecoins might be an option. But most of them fail due to their inability to maintain the USD peg for long. No USD reserves = high risk of a collapse in the long run. I believe this applies for decentralized algorithmic stablecoins. I'm yet to see whenever collaterized stablecoins that are decentralized (eg: DAI, USDJ) will be able to maintain their peg forever. Life is all about risks, anyways.

Despite the on-going centralized stablecoin censorship, I don't think they will be going anywhere soon. Especially when most crypto exchanges and companies are behind them. They're better than traditional Fiat currencies because they can be frozen/manipulated at will. Not only that, but they're highly-programmable, allowing anyone to use stablecoins on "De-Fi" apps and more. I guess that's their main selling point over CBDCs (especially the programmability part). If stablecoin issuers only censor illegal activities on-chain, then should be nothing to worry about. But when things go too far, it's going to be a huge problem for everyone. Who knows if stablecoins will live alongside traditional cryptocurrencies for generations?

[Silberman]

Because they are less monitored than the reserves themselves, so far I have not found a case of stablecoin freezing below $5k even though it was proven to be the proceeds of crime.

you can losing your entire balance, as happened with LUNA, or it may happen if the legal restrictions on these stable currencies are tightened, especially since we all know that they do not possess any reserves that would allow them to print more of these coins.
These are opposite things. If the stablecoin has a large market capacity, regulatory restrictions will increase on it, which may mean freezing even small deposits, and the stablecoin with a small market capacity does not have enough reserves to maintain the value of one dollar.

The risks of holding stable coins are only increasing by the day, now that governments want to release their CBDCs the first coins they will want to target will be stable coins, because if people have easy access to stable coins which they have used for years already then why use CBDCs? So I really think that governments are going to begin to make the life of stable coins holders very hard, and when I consider all of those factors it makes less and less sense to keep holding stable coins.