Tether Holds the Line

In a surprising move on a Wednesday morning, Tether, the issuer behind the popular U.S. dollar stablecoin, decided to take a stand against sanctions imposed by the U.S. Office of Foreign Assets Control (OFAC). They announced that they would not be freezing any smart contract addresses associated with Tornado Cash, a cryptocurrency trail-mixer on the OFAC’s Specially Designated Nationals and Blocked Persons (SDN) list.

The Rationale Behind the Decision

Tether’s explanation for this decision is almost as intriguing as a plot twist in a suspense thriller. They pointed out that

“So far, OFAC has not indicated that a stablecoin issuer is expected to freeze secondary market addresses…”

Furthermore, they noted that despite their close communication with U.S. law enforcement, no official requests for freezing these addresses had been made—yet. It seems Tether is relying on a level of operatic discretion here, rather than jumping headlong into the fray.

The Risks of Freezing Addresses

According to Tether, taking the plunge to freeze wallet or smart contract addresses could be a highly disruptive and, dare we say, reckless act. Their statement outlined potential repercussions:

• It might give suspects a heads-up about impending investigations.
• It could lead to liquidations or abandonment of funds.
• It might hinder crucial evidence gathering for law agencies.

So in essence, Tether is taking the diplomatic route, believing that causing a ruckus might do more harm than good.

Comparing Approaches

In contrast, the USD Coin issuer Circle took swift action earlier this month to freeze Tornado Cash addresses without waiting for guidance from the authorities. Tether expressed reservations about this, claiming it could jeopardize global regulatory efforts. Tether remarked that

“If made without instructions from U.S. authorities, the move by USDC was premature…”

Interestingly, other U.S.-based stablecoin issuers like Paxos and Dai did not follow in Circle’s footsteps. This divergence in action highlights how various companies are navigating the murky waters of compliance and regulation in the crypto sphere.

Compliance and Uniqueness of Tether

It’s worth noting that while Tether is often under the regulatory microscope, they operate out of Hong Kong and have chosen not to onboard U.S. customers. Still, they comply with certain U.S. regulations voluntarily. This unique position affords them a different perspective on the matter, allowing them to play by their own rules—like a poker player who sees everyone else going all in.

What Lies Ahead?

With sanctions against Tornado Cash effective since August 8, there is an ongoing game of regulatory chess unfolding in the world of stablecoins. Will Tether’s cautious stance pay off, or will their loose knit approach to regulation lead them into hot waters? Only time will tell, but for now, they’re holding steady in a volatile market.