The stablecoin “freeze button” is now being put to the test in court.

On October 5, cross-border payments company Conduit sued Tether in the U.S. District Court for the Southern District of New York (SDNY), making a straightforward demand: return the approximately $2.76 million in $USDT that has been frozen for more than a year.

According to the complaint and reporting by Decrypt and The Block, here’s roughly what happened:

1️⃣ On September 24, 2025, Conduit’s treasury wallet was frozen and could no longer send or receive funds. Conduit says the wallet was essentially the company’s “operating bank account.”

2️⃣ The background is that Brazil’s Federal Police were investigating a company called Onix, which had previously used Conduit’s platform. But Conduit says the wallet was created only in May 2025—nearly a month after Onix’s last transaction on the platform—and never held any of Onix’s funds. Brazilian police had never named this wallet either.

3️⃣ Conduit says the freeze was a decision made by Tether’s own T3 Financial Crime Unit. Despite repeated inquiries, it received no substantive explanation, and a lawyer’s letter sent in August this year did not help.

4️⃣ The claims: a ruling that Tether had no right to freeze the funds, their immediate release, at least $2.76 million in damages, plus the yield earned during the freeze on the reserves backing the frozen USDT. Conduit also says the liquidity crunch directly led to layoffs and office closures.

My take:

The ability to freeze funds isn’t news in itself—everyone applauds when it’s used to combat money laundering. The real question is what happens when innocent users are caught in the net: who reviews the decision, how long it takes to get an answer, and who gets the interest on reserves during the freeze. For now, those decisions are largely up to the issuer.

This case puts the boundaries of centralized stablecoin issuers’ power to freeze funds squarely before a U.S. federal court. For payment companies, OTC desks, and market makers that use USDT for treasury operations every day, this is more worth watching than price volatility.

Of course, these are just allegations made by Conduit in its complaint. We’ll have to wait and see how Tether responds and how the court rules. Screening without educating: how many stablecoins do you keep your operating funds in?

Sources: SDNY complaint (CourtListener), Decrypt, The Block

Not investment advice. DYOR.