Darcy, a blockchain asset recovery specialist and co-founder of FlashRescue, reported that targeted funds slipped out of a wallet while Tether was in the process of freezing it.
In 2026, Circle was repeatedly criticized for too rarely freezing funds flagged as suspicious or stolen. Now, Tether, long praised for freezing funds, is being criticized for the effectiveness with which its freezes are carried out.
What exactly is Tether being criticized for?
Darcy from FlashRescue, who posts on X (formerly Twitter) under the handle @DarcyAri and works on joint investigations with partner firms, wrote on August 6, 2026, that during a recent case, funds flagged as problematic at one address were transferred even during a freeze being conducted by Tether. This delay reduced the total amount they could freeze.
The stablecoin issuer has long been praised for the speed of its fund freezes, especially compared to its main competitor, Circle ($USDC). However, the new criticism points out that there is a significant time gap between the proposal and final confirmation on the blockchain when Tether implements a fund freeze.
The problem with Circle is inaction. CEO Jeremy Allaire stated at a press conference in Seoul that the $USDC issuer would freeze a wallet only "at the direction of law enforcement or a court."
Blockchain analyst ZachXBT pointed to more than a dozen cases since 2022, including the North Korea-linked Drift Protocol vulnerability, involving about $280 million, where Circle used its fund freezing capabilities, and about $420 million in illicit funds that went untouched.
The Wisconsin District Attorney's Office filed a criminal complaint against Circle after it stated it could not comply with a warrant to seize funds, obtained by a fraud victim, from a $USDC fund.
Does a gap truly exist in Tether's freeze execution?
An analysis of 2955 Tether freeze events on the Ethereum and TRON networks showed that the average time between a freeze proposal and its execution is 2 hours, 16 minutes, and 15 seconds.
The freeze mechanism is controlled by a multi-signature wallet, which is the primary reason for the delay.
The analysis showed that at least 60 addresses fully emptied their assets before the freeze took effect, moving a total of $20.4 million in USDT. These transfers began on average just 14 minutes after a freeze proposal was made, with the main funds typically moved within 15 minutes.
Furthermore, another 113 addresses managed to transfer part of their assets, totaling approximately $35.5 million, before the freeze was imposed.
The most prominent public example of this vulnerability in Tether's system is the company's action in July against Iran's central bank. After OFAC sanctioned four TRON wallets holding over $165 million in stablecoins, Tether froze $131 million, but by the time of the freeze, about $34 million had already vanished.
Certainly, the lost amount is only a small portion of the major seizure, as Tether's Iran-related freezes now total around $475 million, including a separate $344 million freeze in April, but a freeze mechanism with such a large gap could be exploited by a sophisticated bad actor.
Tether stated it coordinates "directly with investigators during active cases, rather than reacting after funds have already been distributed," and reported cooperating with over 340 law enforcement agencies across 65 countries on more than 2,300 cases, helping freeze assets worth over $4.4 billion.
In a post on August 4, regarding the Gate exchange heist, Darcy stated that recovering lost assets becomes nearly hopeless once stolen funds reach a certain address and are commingled with unrelated money, as Tether rarely freezes a pool whose provenance cannot be definitively established.
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