Tether, USDT’s parent company, has frozen over $150 million worth of USDT stablecoin on its network. The tokens’ freeze was reflected on the blockchain ledger data on the 13th of January.
Tether is notorious in the crypto community for its regular interference in its centralized operational framework; its continuous actions that see accounts freeze have raised backlash in the community and concerns about centralization in decentralized space.
According to on-chain data, Tether company froze over $150 million USDT on the 13th of January; this is not the company’s first-time definitive action. The authority its smart contract grants it to freeze wallets has always been a major controversial topic in the industry.
The crypto company also blacklisted three accounts in tandem with the accounts freeze. Tether’s smart contract algorithm allows the company to completely freeze, burn or deploy its tokens and blacklist any address.
The Centralization Paradox In DeFi
The company’s non-singular act of token freeze has raised concerns on the dilemma of the centralization of decentralized systems in the crypto industry. Continual use of its smart contract leveraged authority has resulted in a backlash from a significant percentage of the crypto industry globally. Investors and traders are now pushing for the mass development, deployment, and adoption of decentralized stablecoins like the DAI crypto stablecoin.
The majority of the DeFi stablecoin market space constitutes mainly USDT and USDC that are wholly centralized. The DAI decentralized stablecoin is an up-and-coming crypto token in the stable coin and hasn’t fielded as much utility and relevance as the USDT and USDC.
The DeFi Centralization Paradox is best explained with the DAI stablecoin as a case study. ALTHOUGH DECENTRALIZED, the DAI crypto stablecoin is not fully backed by DeFi commodities, as reports have suggested that a significant portion of the stable coin is backed by centralized USDC. The partially centralized backing that DAI features pose a significant risk as the token is now open to the vulnerability that the centralized systems feature.
The DeFi centralization paradox doesn’t only showcase itself in the DAI stablecoin as there is no fully Decentralized stablecoin due to the limited resources the DeFi system can provide commodity and service wise, henceforth the reliability of DeFi set-ups partly or wholly on centralized systems.
Tether’s Controversial USDT Commodity Backing
Controversies about Tether’s backing emerged early last year as the company went on a minting rampage in 2021.
However, Tether’s most controversial aspect is its ability to successfully back up its supply of over 76 billion USDT in circulation on the Blockchain network. Investors have continuously questioned the company’s ability to successfully back such a large amount of assets physically. Worst-case scenarios that will see Tether be unable to account for its supply’s backing were theorized in the community for most of last year before the United States Commodity Futures Trading Commission (CFTC) interfered through an investigation of the crypto firm.
It claimed that it has enough catalog of assets to back its supply of USDT, but the skepticism of investors and the subsequent storm that rose drew the attention of the CFTC. The CFTC came into the picture after investors and analysts widely demanded a reliable audit of the company. HOWEVER, the CFTC’s investigation didn’t discover any issue in Tether’s account books. CFTC did, however, slam Tether with a $41 million fine.
Tether hasn’t released any official statement concerning its tokens’ freeze and wallets blacklist yet.
