Tether has frozen over $3.3 billion in USDT linked to sanctioned entities, acting under guidance from the U.S. Treasury's Office of Foreign Assets Control (OFAC). The authority to order such freezes stems from the GENIUS Act, passed in July 2025, which provides a U.S. regulatory framework for payment stablecoins. In a notable instance in January 2026, Tether blacklisted $182 million in USDT from wallets linked to Iran's Islamic Revolutionary Guard Corps (IRGC). A further $6.76 million tied to the IRGC and Houthis was frozen in March.
Despite these actions, a significant enforcement gap persists. Analysts estimate that approximately 80% of illicit crypto funds continue to move through the system, largely evading detection and seizure. The IRGC alone reportedly moved $3 billion through cryptocurrency in 2025, with over half of Iranian crypto flows channeled through IRGC-linked addresses, predominantly using USDT on the Tron network.
Evasion tactics are sophisticated and widespread. Bad actors utilize over-the-counter (OTC) desks in hubs like Dubai and Hong Kong, cross-chain bridges, and decentralized exchanges (DEXs) to transfer assets without identity checks. Funds are spread across numerous addresses and intermediaries, making tracking difficult. Enforcement actions typically disrupt only 10% to 20% of illicit activity, as new wallets are created faster than authorities can designate them for freezing.
Concurrently, Circle's freeze authority over USDC is facing intense criticism. On-chain investigator ZachXBT, in his "Circle Files," alleges inconsistent application of this power. The report highlights that Circle was too slow to act in 15 cases involving over $420 million in allegedly stolen funds since 2022. A stark example is the Drift protocol exploit, where more than $280 million in USDC moved across 100+ transactions in about six hours without being frozen.
In contrast, Circle swiftly froze 16 operational business wallets—tied to exchanges, casinos, and forex services—in response to a sealed U.S. civil matter. ZachXBT noted these wallets did not appear to be connected to the case, raising questions about the precision of Circle's review process. Circle later unfroze at least one of these wallets, belonging to Goated.com. This sequence of being "slow on theft, sweeping on civil process" has sparked a debate about the balance between compliance, user protection, and issuer control.
Circle's legal framework grants it broad discretion. While its public Access Denial Policy states freezes are triggered only by threats to network security or valid legal orders from U.S. or French authorities, its broader USDC Terms and Circle Mint User Agreement allow it to block addresses and suspend accounts at its "sole discretion." This legal stack prioritizes compliance and issuer control, which now troubles business operators who rely on USDC for settlement.
The legislative landscape contributes to the challenge. The stalled Digital Asset Market Clarity Act includes a Section 309 that exempts DeFi activities—including the cross-chain bridges and DEXs used to route illicit funds—from oversight. This creates a contradiction where one law enables wallet freezes while another allows actors to bypass them using decentralized systems.
The market impact is significant. USDC, with roughly $77.2 billion in circulation as of April 3, 2026, accounts for about 24.5% of the total stablecoin market. Its role as a core settlement asset means Circle's freeze governance operates at a systemic level. The scrutiny reflects the infrastructure role Circle has claimed and forces a reevaluation of the operational risk for businesses holding or moving dollars on-chain.
