100k In USDC Is Still Frozen, Centralized Stablecoins Face Scrutiny

Increased scrutiny towards centralized stablecoins is expected in the next period, after around 100k in USDC was frozen by the issuer Centre. In fact, Centre has frozen an address that held $100,000 worth of the stablecoin.

The blacklisting of this address occurred back in June 2020, and was reportedly done by Centre itself. For those of you who don’t follow our USD Coin news, Centre is a collaboration between the major crypto company Circle and Coinbase.

The decision was made on “request from law enforcement” and as a spokesperson from Circle told the media, “Centre complies with binding court orders that have appropriate jurisdiction over the organization.”

Further details about how 100k in USDC is frozen and the specific law enforcement request are still unknown. Centre has been contacted by our team in a request to comment on the situation, and we will update this article if there is a reply.

USDC now has "uncertainty" around it. Somebody gtfo of it into good ol' tether.

— sicarious (@Sicarious_) July 8, 2020

No matter what happens after this, this cryptonews story raised a lot of questions about the stablecoin business in general. According to Jake Chervinsky who is the general counsel at the decentralized finance (DeFi) platform Compound Finance, Centre was urged to explain in detail all the criteria they use to decide when to blacklist an address, all while asking if the move came in response to a court order or was done voluntarily.

“This is important: USDC blacklisting has gone from a hypothetical concern to a real risk,” he said.

In 2018, we wrote an article warning that Circle has the right to blacklist USDC addresses and freeze funds if they decide that the funds are used for illegal activities. However, USDC is not alone in this – even Tether (USDT) and TrueUSD (TUSD) have clauses that say that they reserve the right to refuse service to anyone they want to without any explanation.

Also seems in the realm of possibility that many Bitcoin exchanges apply travel rule to create a new pool of whitelisted Bitcoin and shut out all other Bitcoin from their platforms.

— Matt Ahlborg [UsefulTulips.org] (@MattAhlborg) July 9, 2020

Crypto Twitter now has many discussing the potential future of USD Coin and stablecoins after this. No one is taking the situation lightly and many are now afraid of the risk that the underlying asset could be confiscated, potentially causing the stablecoin to lose all of its value even if the coins themselves are not “frozen.”