Thomas Daniels
A recent compliance investigation has revealed a critical vulnerability in Tether’s USDT blacklisting mechanism, allowing more than $78 million in illicit funds to be transferred before enforcement measures were executed.
The blacklisting process, which functions on both Ethereum and Tron blockchains, is hindered by a multi-signature procedure that introduces significant delays. This lag between the initiation and finalization of a blacklisting request provides a window during which suspicious wallets can remain active and operational.
In one observed case, there was a 44-minute interval between the initial blacklist submission and its execution. During this time, targeted wallets had the opportunity to relocate substantial sums, effectively evading the freeze.
Data shows that from November 28, 2017, to May 12, 2025, roughly $28.5 million in USDT was transferred during such delay windows on Ethereum, with an additional $49.6 million on Tron. Among wallets on the Tron network, 170 out of 3,480 exploited these lags, each conducting multiple withdrawals averaging nearly $292,000.
The findings raise concerns about the current effectiveness of Tether’s compliance protocols. Recommendations for improvement include restructuring the smart contract framework to enable immediate enforcement and minimizing public indicators of pending blacklist actions to reduce the risk of preemptive fund movements.
