An Israeli criminal lawyer with 25 years in international criminal defense explains why Tether's power to freeze USDT wallets — $1.26 billion blacklisted in 2025, only 3.6% ever unfrozen — operates without notice, hearing, or appeal.
A client sits across from me in my Tel Aviv office and shows me his phone. The balance is there — six figures in USDT, displayed to the last decimal. He can see his money. He simply cannot move it. No letter. No order. No case number. No one to appeal to. Somewhere, someone decided that his wallet address should be blocked, and the decision took effect the moment it was made.
As an Israeli criminal lawyer who has practised international criminal defense for twenty-five years, I have had that conversation more times than I expected. Crypto asset freezes have become one of the most common ways ordinary people lose access to their own funds — and almost nobody outside the Israeli criminal law community understands how little process stands behind it.
Tether Blacklisted 4,163 Addresses in 2025 — Freezing $1.26 Billion
Here is the part most holders of stablecoins do not know. USDT is not Bitcoin. Bitcoin has no issuer; there is no entity capable of stripping you of the ability to move your coins. USDT is different by design. It is the liability of a private company — Tether — expressed through a smart contract that the company wrote and controls. Built into that contract is a function allowing the company to mark any wallet address as blocked. Once marked, the network itself refuses to move the balance. Holding the private key protects you from everyone in the world except the issuer.
The numbers are no longer abstract. In 2025 alone, Tether blacklisted 4,163 unique addresses across the Ethereum and Tron networks, freezing a cumulative $1.26 billion in USDT. More than half of those frozen tokens were permanently destroyed using Tether's destroyBlackFunds function — gone, not recoverable by any court order. From 2023 through 2025, the cumulative total exceeded $3.29 billion across 7,268 addresses. In the first five months of 2026, Tether froze another $500 million in a single 30-day window. The pace is accelerating.
Only 3.6 percent of addresses blacklisted in 2025 were ever unfrozen.
The Problem Is Not That the Power Exists — It Is That No Procedure Governs It
I want to be precise about my objection. Issuers face real regulatory obligations. Stolen funds do move through these networks. A mechanism to intervene is defensible. My objection is to the complete absence of procedure around it.
Consider what a frozen bank account involves. There is a decision-maker who can be identified. There is usually an order, or at least a statutory basis. There is a duty to notify, a body to complain to, and a court that can be asked to intervene. The process is imperfect, often slow, and sometimes unjust — but it is a process. It presumes that the account holder is a person with rights.
A blacklisted wallet address involves none of that. There is no notice. There is no hearing. There is frequently no way to establish which authority, in which country, asked for the block — or whether any authority asked at all. Tether collaborates with over 340 law enforcement agencies across 65 countries, but the holder discovers the freeze only when a transfer fails — and is left to guess at both the cause and the remedy.
The Burden Falls Entirely on the Holder — and the Window Is Short
The consequence is an inversion that should trouble anyone who thinks about due process. Because no one tells the holder anything, the burden of demonstrating innocence and of initiating a release falls entirely on the holder. A person who does nothing may remain frozen indefinitely — not because a decision was made against him, but because no one is under any obligation to revisit the decision at all.
I have seen freezes survive the closure of the investigation that prompted them. Nobody lifted them because lifting them was nobody's job.
Worse: the window between a freeze and permanent destruction of the tokens can be measured in weeks. Once Tether executes its burn function, the funds cease to exist on the blockchain. No lawyer, no court order, no appeal can bring them back. The only remaining remedy is a compensation claim — a materially harder argument than an unfreezing petition. Speed in responding to a blacklisting is not optional. It is existential.
Who Gets Frozen — and Why Innocence Offers No Immunity
Not primarily the sophisticated criminal, who has other tools. In my practice as a criminal defense attorney in Israel, the people most often caught are peer-to-peer traders who sold to a buyer whose money turned out to be tainted. Freelancers paid in crypto by a client abroad. Israeli tech founders settling cross-border invoices with suppliers. Heirs who received a wallet whose history they never knew. These holders are exposed not by their own conduct but by other people's provenance — something they have almost no practical way to verify before accepting payment.
This happens because the freezing mechanism is a compliance and risk instrument — not an adjudicative one. It is designed to protect the issuer from regulatory exposure, and it does that job efficiently. It was never designed to determine whether a particular holder is culpable, and it does not attempt to. So the threshold is low and the errors are systematic: the wrong address blocked over a transliteration error; every intermediate address in a traced chain frozen at once, good-faith recipients included; an algorithmic risk score — a probability, not evidence — treated as though it settled the question of what the holder knew.
As one industry analysis put it plainly: the defining risk of 2026 is contagion. You do not need to be a criminal to suffer a freeze. You simply need to be the one holding the tokens when the chain of provenance reaches you.
Israel Is Building a Stablecoin Regulatory Framework — but the Due-Process Gap Remains Open
Israel is moving on several fronts. In April 2026, the Capital Market Authority approved the country's first regulated stablecoin — BILS, a shekel-pegged token issued by Bits of Gold on the Solana blockchain. In June 2026, the Ministry of Finance published a draft bill proposing the first dedicated licensing and supervisory framework for stablecoin issuers operating in or targeting Israeli users — including extraterritorial reach against foreign issuers like Tether and Circle.
These are serious steps. But none of them address what happens to the holder whose wallet is frozen by a foreign issuer, with no Israeli court order, no Israeli regulatory directive, and no Israeli appeals mechanism. Israeli criminal lawyers handling asset recovery and frozen funds cases — whether involving traditional banking seizures or crypto blacklists — face the same structural problem: there is no domestic forum with jurisdiction over Tether's smart-contract function. The due-process gap between the act of freezing and the rights of the frozen remains entirely open — in Israel and everywhere else.
Three Reforms That Would Cost Issuers Very Little
None of this is a reason to abandon stablecoins, and I am not arguing that. It is a reason to insist on three changes that would cost issuers very little:
Notify the holder. If an address is blocked, the holder should be told that it happened and given a reference number — even where the underlying reason must remain confidential. Silence serves no legitimate investigative purpose once the block is already in force and visible on-chain.
Publish a real review channel. Not a support ticket queue, but a defined process with a stated timeframe in which a holder can submit evidence of the source of funds and receive a reasoned answer.
Make freezes expire. A block imposed at the request of an investigation should lapse unless the requesting authority renews it. Indefinite duration by default is how erroneous freezes become permanent ones.
What to Do Before You Are Frozen — and What Not to Do After
Until something along those lines exists, the practical advice I give is uncomfortable but honest.
If your funds are still accessible, assume the risk is real and document the origin of everything you receive now, while the records are easy to obtain. Check counterparty addresses against on-chain blacklists before accepting significant transfers. The tools exist — and they are the single most important precaution available.
If your funds are already frozen, do not attempt to move them through other wallets or bridges. It will not work, and the attempt is permanently recorded and will be read as concealment. Consult an Israeli criminal lawyer experienced in asset recovery and frozen funds before sending explanations to anyone — before you understand your own exposure, a document sent in haste cannot be taken back. And move fast — the window before potential destruction of the tokens is not guaranteed.
The technology moved faster than the procedural protections around it. That gap is where my clients live — and it is why Israeli criminal defense lawyers, asset recovery specialists, and international financial crime practitioners are now handling stablecoin freezes alongside traditional bank seizures and cross-border forfeiture cases. Closing it is not a technical problem. It is a question of whether the people who hold these assets are treated as parties with rights — or merely as addresses on a list.