Stablecoin leader Tether’s partner bank, EQIBank, has had $89 million worth of assets frozen by U.S. authorities. Even though the percentage is relatively low, the hidden counterparty risk in stablecoin back-end banking partners still exists. (Backgrounder: GENIUS Act turbocharged—$149 billion in stablecoins forced to buy U.S. Treasuries.) (More context: The Fed pushes GENIUS Act into implementation: stablecoin issuers must hold money to mitigate risk; if redemption isn’t made within two days, liquidation follows.) On Thursday, stablecoin leader Tether (USDT) confirmed that U.S. prosecutors froze EQIBank, the digital bank it works with for payment and remittance processing. The frozen assets total $89 million, or about 80% of EQIBank’s cash. A Tether representative said the assets account for “less than 0.034%” of the group’s total assets of $18.775 billion; by proportional calculation, that would be about $64 million. Tether’s reserve ratio has been barely shaken, and the peg of USDT to the U.S. dollar is not directly threatened. However, the Financial Times and The Information noted that this freeze also exposed hidden risks for stablecoin issuers. Stablecoins don’t rely on directly holding U.S. dollars; instead, they process customers’ deposits and redemptions through layers of banks and payment processors. How were EQIBank’s funds frozen? EQIBank’s funds came from a payment processor called Capstone, which in the U.S. held the money for EQIBank and scheduled customer funds through the accounts of Wells Fargo and JP Morgan. According to court filings, Capstone concealed the true nature of its business from the banks. Prosecutors then seized funds from these accounts and brought a civil forfeiture lawsuit, alleging Capstone misrepresented its business model to the banks. EQIBank later said the $89 million includes crypto assets such as 450,000 BTC and 150,000 ETH. In an email, a Tether representative said, “Tether did not know about Capstone’s actions,” and added that the EQIBank assets held by the group are “less than 0.034% of the group’s assets.” Where exactly are a stablecoin’s “reserves” kept? In Tether’s June filings, total assets were $18.775 billion: about 50% was short-term U.S. Treasuries within one year, while the rest of the assets are held with custody banks in New York and several partner institutions. EQIBank handles U.S.-dollar wire transfers for buying and redeeming USDT, but it does not hold Tether’s primary reserves. By contrast, USDC issuer Circle takes a more direct approach, storing assets in banks and clearinghouses across multiple countries and publishing reserve breakdowns every month. On the other hand, EQIBank also provides banking services to multiple crypto exchanges, including processing some trades for Binance, Kraken, and Coinbase. This means the failure of the same batch of banks could simultaneously affect liquidity across multiple platforms. Market significance: the risk of stablecoins’ “banking rails” This incident shows that even a stablecoin giant like Tether is not completely immune to banking risks. Stablecoin operations depend on layers of “banking rails”—from deposit banks to payment processors to clearinghouses—where each node carries potential counterparty risk. Compared with holders of bitcoin cashing out, stablecoin risk is more “institutional” in nature: it’s not driven by market sentiment, but by the operational efficiency of the funding rails themselves. If EQIBank were truly to fail, Tether’s reserve ratio would drop by 0.034%, but USDT’s U.S. dollar peg would not be materially affected. Still, this event also reminds the market that stablecoin “reserves” are not entirely safe—they exist within networks of multiple banks and payment processors. The key to watch next is whether Tether will disclose more detailed reserve information, and whether EQIBank’s banking partnership network has other potential liquidity risks. Related coverage How are Tether and stablecoin reserves calculated? Analysis of the $18.775 billion asset structure How are stablecoin reserves allocated? Asset structure and bank partnerships under the GENIUS Act Tether and Bitfinex reserve/“custody reserves” declaration fined by the CFTC: $42.5 million Apple and Google recruit stablecoin and tokenized deposit executives! Salaries could top $280,000 Trader bets on four Fed rate hikes next year! Bitcoin falls below $83,000; Treasury yields surge wildly. "Tether’s partner bank has $89 million frozen by the U.S., exposing hidden stablecoin risks" This article was first published on BlockTempo (BlockTempo, a highly influential blockchain news media outlet).