Tether’s Blacklisting Delay Allows $78M in Illicit Funds to Slip Through, Report Reveals

– Tether’s delay enabled $78M in illicit funds to move
– Multisignature contract causes enforcement delays
– Ethereum and Tron networks impacted
– Stablecoin regulation stalls in Congress
– Political tensions over Trump’s crypto initiatives

A recent report by AMLBot has exposed a critical vulnerability in Tether’s wallet blacklisting process, allowing over $78 million in illicit funds to escape before enforcement. The root of the problem? A delay caused by Tether’s multisignature contract, which has been exploited on both Ethereum and Tron networks. Meanwhile, the U.S. Congress remains stuck in the political quagmire over stablecoin regulation, with former President Donald Trump’s crypto initiatives adding fuel to the fire.

Released on May 15, the AMLBot report details how Tether’s two-step blacklisting process, necessitated by its multisignature contract, creates a window for bad actors to act before their wallets can be frozen. This isn’t just a minor hiccup; it’s a gaping hole that’s been exploited to move substantial sums. On the Tron network, for example, a delay of 44 minutes was observed between the initial blacklisting submission and the final enforcement action. During this window, over $49.6 million slipped through the cracks.

A multisignature contract is a security measure requiring multiple approvals before actions can be taken. In Tether’s case, this means that when a wallet is flagged for blacklisting, it takes time for the necessary approvals to be processed, creating a delay that lets criminals move their money before it’s locked down. It’s like watching a high-stakes game of ‘freeze tag’ where the bad guys are always a step ahead.

Between November 28, 2017, and May 12, 2025, a total of $28.5 million was moved on Ethereum and $49.6 million on Tron, with 4.88% of the 3,480 wallets blacklisted on Tron taking advantage of the delay. This isn’t just a technical issue; it’s a wake-up call for the entire stablecoin industry. AMLBot’s researchers pointed out that this delay is a “golden” opportunity for blockchain-savvy attackers who can track Tether’s moves in real-time and act before the hammer comes down.

Tether, for its part, responded to the report by emphasizing its collaboration with over 255 law enforcement agencies across 55 countries and its efforts to freeze $2.7 billion in USDT linked to illicit activity. They acknowledged the delay as a necessary aspect of their multisignature governance model, which aims to prevent unilateral freezes and protect the system’s integrity. However, they also stated that improvements are being made to address this vulnerability. It’s like Tether’s playing whack-a-mole with these bad actors, but the moles keep popping up faster than they can swing the hammer.

While Tether grapples with these technical challenges, the political landscape surrounding stablecoin regulation adds another layer of complexity. Can Tether fix this vulnerability before more funds escape? The U.S. Congress is struggling to make headway on stablecoin regulation. The GENIUS Act and STABLE Act, key legislative efforts, have hit a wall due to political tensions. The stablecoin bill, spearheaded by Sen. Bill Hagerty and passed by the Senate Banking Committee in March, has faced resistance, with Senate Majority Leader Chuck Schumer reportedly urging colleagues not to commit to the bill in its current form. The political landscape has been further complicated by former President Donald Trump’s expanding crypto initiatives, which have thrown a wrench into the legislative process.

The AMLBot report underscores the technical challenges faced by stablecoin issuers in preventing illicit activities. Tether’s delay is a stark reminder of the need for robust compliance measures in the crypto space. But as Congress fumbles with regulation, the industry continues to evolve, with or without legislative guidance. Will the powers that be ever catch up, or will they continue to play catch-up in the ever-accelerating world of decentralized finance?

In the meantime, Tether’s collaboration with law enforcement and analytics firms like TRM Labs to freeze over $126 million in USDT in 2024 shows their commitment to tackling illicit activities. Yet, the market impact of such vulnerabilities cannot be ignored, as they can erode investor confidence in stablecoins like USDT. As the crypto ecosystem continues to grow, the need for more effective compliance mechanisms across the board becomes increasingly critical.

The Tether Blacklisting Delay

Tether’s blacklisting process involves a two-step procedure due to its multisignature contract. When a wallet is flagged for blacklisting, it takes time for the necessary approvals to be processed. This delay allows criminals to move their funds before the wallet is frozen. On the Tron network, a 44-minute delay was observed, during which over $49.6 million was moved. On Ethereum, $28.5 million was moved during similar delays.

Impact on Ethereum and Tron

The vulnerability has been exploited on both Ethereum and Tron networks. Between November 28, 2017, and May 12, 2025, a total of $28.5 million was moved on Ethereum and $49.6 million on Tron. This represents a significant amount of illicit funds that could have been prevented from moving if the blacklisting process were more efficient.

The Political Stalemate on Stablecoin Regulation

While Tether works to address its technical issues, the U.S. Congress is struggling to pass stablecoin regulation. Will Congress ever get its act together on stablecoin regulation? The GENIUS Act and STABLE Act are two legislative efforts that have been introduced but have not progressed due to political divisions. The stablecoin bill, spearheaded by Sen. Bill Hagerty, has faced resistance, with Senate Majority Leader Chuck Schumer reportedly urging colleagues not to commit to the bill in its current form. The political landscape has been further complicated by former President Donald Trump’s expanding crypto initiatives, which have thrown a wrench into the legislative process.

Potential Solutions and Future Steps

Tether has acknowledged the delay as a necessary aspect of its multisignature governance model but is working on improvements to address this vulnerability. Potential solutions could include streamlining the approval process or implementing real-time monitoring to reduce the window for illicit activity. As a champion of decentralization, it’s frustrating to see such vulnerabilities. As the crypto ecosystem continues to grow, the need for more effective compliance mechanisms across the board becomes increasingly critical.

Key Takeaways and Questions

• What is the main issue with Tether’s blacklisting process?

  The main issue is a delay between the initial blacklisting submission and the final enforcement action, which allows malicious actors to move funds before they are frozen.

• How much money was moved due to this delay?

  Over $78 million in illicit funds were moved, with $28.5 million on Ethereum and $49.6 million on Tron.

• Why has stablecoin regulation stalled in Congress?

  Stablecoin regulation has stalled due to political tensions, particularly related to former President Donald Trump’s expanding crypto initiatives.

• What legislative efforts have been made regarding stablecoin regulation?

  The GENIUS Act and STABLE Act are two legislative efforts that have been introduced but have not progressed due to political divisions.

• What role does former President Trump play in the context of stablecoin regulation?

  Former President Trump’s crypto initiatives have contributed to the political tensions that have stalled legislative progress on stablecoin regulation.

This delay between a freeze request and its on-chain execution creates a critical attack window, allowing malicious actors to act before the freeze takes effect.