How to reduce the risks of stablecoin issuer freezes

On October 5, 2026, cross-border payments company Conduit Technology sued Tether over a frozen USDT wallet containing approximately $2.76 million.

Conduit describes the wallet as "the digital equivalent of the company's operating bank account." It used the funds to support payments across its international corridors.

The wallet was blacklisted on September 24, 2025. As of October 21, 2026, the funds remained frozen.

The case highlights a risk for businesses that use stablecoins in their daily operations. Even when a stablecoin maintains its dollar value, the issuer can prevent a company from moving the tokens it holds.

Companies cannot control every decision a stablecoin issuer makes. They can, however, reduce their exposure to risky counterparties and maintain the records needed to explain where their funds came from.

How stablecoin freezes work

Both USDT and USDC allow their issuers to blacklist wallet addresses through functions built into their smart contracts.

Tether has this capability on Tron and Ethereum, while Circle's USDC contracts have similar controls.

The rules differ between issuers. Under Circle's policy, a blocked address can no longer send or receive USDC. On Tron, a blacklisted USDT address can still receive tokens, but those funds also become frozen.

These controls support sanctions enforcement and law-enforcement investigations. Tether reported in September 2026 that it works with more than 340 law-enforcement agencies across 70 countries and has helped freeze more than $5 billion in assets.

Circle has also exercised this power. In March 2026, the company froze USDC across 16 wallets linked to different businesses, reportedly in connection with a U.S. civil case. The move drew criticism after some of the affected businesses appeared unrelated to the underlying dispute. Circle subsequently restored access to at least one wallet holding approximately 131,000 USDC.

Issuer freezing capabilities are also part of the evolving regulatory framework. The GENIUS Act, effective January 18, 2027, requires permitted U.S. payment stablecoin issuers to have the technical ability to comply with lawful orders.

For companies holding stablecoins, the important point is that an issuer can restrict access to funds even when those tokens remain fully backed.

A freeze is different from a depeg

A depeg affects the market value of a stablecoin. A freeze affects whether its holder can transfer it.

In March 2023, USDC fell below $0.90 after Circle disclosed that $3.3 billion of its reserves were held at Silicon Valley Bank, which had failed. USDC recovered its dollar peg within days.

During that period, holders could generally still move their USDC, sell it at a discount or wait for the price to recover.

With an issuer freeze, the tokens in the affected wallet cannot be transferred. Their market value may remain unchanged, but the company cannot use them.

For a payments business, this can affect its ability to settle transactions, pay counterparties or fund operations. It must find working capital elsewhere or reduce its activity until the funds become available.

What happened to Conduit's $2.76 million?

Conduit operates a cross-border payments platform connecting stablecoins and local currencies across Latin America, Africa and Asia.

According to its complaint, the frozen wallet held the company's own working capital, which it used to pre-fund and settle customer payments.

Conduit says the freeze followed a Brazilian Federal Police investigation involving a former customer. The company claims its treasury wallet never held that customer's funds and did not even exist when the customer used its services.

Public blockchain records show the wallet held approximately $1.76 million when it was blacklisted. Another $1 million arrived later that day, followed by smaller transfers. The balance eventually reached approximately $2.76 million.

Conduit says it contacted Tether several times in June 2026 and supplied supporting documents. Its lawyers then sent a formal demand letter in August, which the company says received no response.

According to the complaint, the freeze prevented Conduit from processing payments at its previous volume and speed. The company also claims the financial pressure forced it to lay off employees and close offices.

Conduit is asking the court to order the wallet unfrozen and award damages of at least $2.76 million.

As of October 21, 2026, Tether had not publicly responded to the allegations and the court had not ruled on their merits.

Tether has not publicly explained why it selected Conduit's wallet. The case remains a useful example of how an issuer freeze can affect a company that depends on stablecoins for daily operations.

How companies can reduce their exposure to freezes

A company cannot guarantee that an issuer will never freeze one of its wallets. It can strengthen its controls in two areas: monitoring who it transacts with and keeping reliable records of where its funds came from.

1. Keep checking counterparties after onboarding

A customer or supplier that passed Know Your Business (KYB) checks six months ago may present a different risk today.

Companies can come under investigation, appear on sanctions lists or change ownership after their initial approval.

That's why compliance checks need to continue throughout the relationship.

Screening transactions before funds leave a wallet helps identify new sanctions or risk exposure. Checking incoming transfers helps teams flag potentially problematic funds before using them. Ongoing monitoring also detects changes in existing counterparties, even between transactions.

These checks reduce the risk of dealing with flagged parties and create a record of what the company knew when each transaction took place.

They cannot prevent every issuer freeze, but they give companies greater control over which funds and counterparties enter their operations.

2. Keep a clear record of where funds came from

If an issuer or investigator questions a wallet, the company may need to explain the source of its funds.

For each transfer, it should be able to identify:

• Who sent or received the funds
• Why the transaction took place
• What the screening checks showed at the time
• How the transfer matches its internal financial records
• Whether any alerts or exceptions were reviewed and approved

This information often sits across several systems: wallets, exchanges, compliance platforms and accounting software.

Gathering it manually can take days, especially when a wallet has received thousands of transactions.

Maintaining a reconciled transaction history allows finance and compliance teams to retrieve the evidence without starting from scratch.

Can better records shorten a freeze?

Complete records may help a company respond faster to information requests, but they do not guarantee that an issuer will release the funds sooner.

The Conduit case illustrates that limitation. The company says it provided documentation months before filing its lawsuit, yet the wallet remained frozen.

Still, maintaining transaction records in advance removes one source of delay: the time the company needs to collect and organize its own evidence.

A practical checklist for companies holding stablecoins

Companies that depend on stablecoin wallets for working capital should review four controls:

1. Screen transactions before funds move. Check outgoing addresses and counterparties against sanctions lists and risk data. Review incoming transfers before the funds are used.
2. Monitor counterparties continuously. Recheck existing customers and suppliers when sanctions, ownership or risk information changes.
3. Reconcile transactions across accounts. Connect wallet activity to counterparties, business purposes and accounting records so teams can explain how each balance was built.
4. Keep a record of compliance decisions. Store screening results, approvals and exceptions with timestamps so they can be retrieved when needed.

A useful exercise is to select one operating wallet and try to explain its entire current balance.

Can the finance and compliance teams identify where every transfer came from, match it to a ledger entry and retrieve the screening results?

If producing that information takes several days, the process can be improved before an issuer or investigator asks for it.

How Range helps

Range helps companies manage these controls across stablecoins and fiat.

With Range Protect, companies can screen outgoing transactions before execution, check incoming transfers and continuously monitor counterparty risk. Range can also integrate with existing screening providers, letting compliance teams keep using the tools they already trust.

Range Unify brings transactions from wallets, custodians, exchanges and bank accounts into one ledger. It reconciles transactions and keeps counterparty information, activity history and compliance records connected.

Together, these capabilities allow finance and compliance teams to identify risky transactions earlier and retrieve supporting records when needed.

Range cannot prevent an issuer from freezing a wallet or decide when to release funds. It helps companies manage exposure and keep the records needed to respond.

If your company holds working capital in stablecoins, request a Range sandbox and see how quickly your team can produce a complete transaction history for one of its operating wallets.