Conduit filed suit against Tether in the Southern District of New York, alleging the stablecoin issuer froze $2.76 million in USDT without justification. The complaint claims Tether refused to release the funds, targeting a core vulnerability in the world's largest stablecoin—the issuer's unilateral power to blacklist addresses and seize collateral.
Tether maintains direct smart contract authority to freeze USDT across all blockchains. On-chain data confirms Tether has blacklisted over 1,300 unique addresses to date, locking millions in holdings. The company argues this mechanism serves law enforcement compliance and counters illicit activity. Conduit's filing challenges whether the $2.76 million freeze met that standard, calling it arbitrary and unjustified.
The suit exposes a critical fault line in USDT's dominance. The stablecoin commands over $100 billion in market cap and underpins a substantial portion of daily crypto trading volume and DeFi liquidity. For traders and protocols using USDT as a settlement layer, Tether's ability to freeze funds without clear legal process represents a hidden tail risk—one that institutional participants cannot ignore. That tension between utility and unilateral issuer control now sits in front of a federal court.
Tether has not publicly responded. Initial discovery phases will likely expose details about the specific transactions and Tether's stated rationale for the freeze. The ruling could set precedent for how stablecoin issuers manage fund restrictions and how regulators view their operational authority over user assets.
