“In its sole discretion”: the Clause That Lets Tether Freeze Your USDT Without a Court Order

Hold USDT and you do not hold a bank balance but a claim against a private company. That company can put individual addresses on a blacklist, and it does so regularly. The power to do it sits in Tether's own terms of service, and it reaches further than most holders assume: Tether may freeze a balance when a law requires it, and in addition whenever the company considers it prudent at its own discretion.

Since October 5, 2026, a suit before a US federal court has been attacking exactly that clause. The payments company Conduit Technology filed in Manhattan because 2.76 million USDT from its corporate treasury have been frozen since September 24, 2025. Press coverage of recent days reports the events. The follow-up question a holder has goes unanswered: what does a freeze like that rest on, and what follows from it for your own balance?

This article reads the governing passage in the original, sets out what is disputed about it, and derives from that the points you can check against your own position. It does not prejudge a ruling, because the dispute is open.

What Tether's Terms of Service Literally Allow When Freezing USDT

What governs are the Token Terms of Sale and Service, Tether's own rulebook for the purchase, redemption and custody of its tokens. In the version dated February 26, 2026, it says there that Tether may suspend or terminate access to its services and "freeze any Tether Tokens held by you". The sentence then names three triggers: where applicable law requires it, where you have breached the terms or applicable law, and where Tether "in its sole discretion, determines it is prudent to do so".

The third trigger stands on equal footing with the other two. It requires no court order, no order from an authority and no breach by the holder. On the wording, a suspicion the company itself holds to be well founded is enough.

A second passage in the same terms goes further still. Among the possible measures where unlawful use is suspected, it names a report to the authorities without any notice to the person affected, the freezing or seizure of balances, the "blacklisting any Digital Tokens Address which holds Tether Tokens" and expressly that Tether may "at its sole and absolute discretion, seize and deliver your property" to the authorities. The word property there refers to what belongs to you, not to what belongs to the issuer.

Blacklist, in brief: A blacklist is a register of blockchain addresses whose balances the issuer of a token renders unusable. The address stays visible, the amount stays put, but every transfer out of that address fails.

"In its sole discretion": Why Those Three Words Are the Heart of the Dispute

In contract drafting, sole discretion is a standard formula and means that one party decides alone and need not give reasons. It is customary where side issues are concerned, the design of a website for instance. It becomes unusual once it governs access to assets that belong to someone else.

That is where the criticism begins. At a bank, freezing an account needs a legal basis, and the customer can have it reviewed. With a stablecoin, a set of standard terms replaces that chain. Whether such a text is effective at that breadth is a question of law on which no court has ruled so far.

A counter-example helps place it. When stolen XRP worth $83 million surfaced at Ripple in September 2026, the company could not freeze them, because the XRP Ledger provides no such function for the token itself. We set out the limits of this technique in our analysis of frozen and unfreezable coins. The freeze function in USDT is therefore not something a blockchain simply comes with. Somebody built it in deliberately.

Blacklisting: How a Freeze Written Into the USDT Contract Works on the Blockchain

USDT runs as a program on other networks, chiefly on Ethereum and Tron, and brings no network of its own. That program, the smart contract in technical parlance, keeps the list of all balances and decides on every transfer whether it goes through. The blacklist sits inside that same list.

Smart contract, in brief: A smart contract is a program that runs on a blockchain and whose rules anyone can read. Whoever wrote it determines what special powers the issuer retains.

Once Tether puts an address on that list, the program checks on every further attempt to send from it whether the address is blocked, and aborts. The balance does not disappear in the process. It stays visible in the blockchain explorer and can be counted to the cent. Movable it is not, all the same. How to look that up for your own address is set out step by step in our guide to checking a USDT address against the blacklist.

Technically the same logic applies to every token with an issuer. To know how much control sits inside a stablecoin, read the functions of the program and leave the marketing copy aside. Our overview of key control at USDT shows who holds which power in the background.

Conduit Technology's Lawsuit Over 2.76 Million USDT

Conduit Technology settles cross-border payments. On the company's account, it held USDT from May 2025 in a corporate wallet that it describes as the counterpart to a business bank account. On September 24, 2025, Tether is said to have frozen the entire holding of 2.76 million USDT. The complaint, filed on October 5, 2026, with the federal district court for the Southern District of New York, states that Tether has "no legal entitlement" and "no claim" to those funds.

The background, according to the complaint, is an investigation by the Brazilian federal police from 2024 directed against two financial intermediaries. Conduit submits that one of them was a former customer, had not used the platform since April 2025, and that the frozen wallet never held that customer's funds. Tether is said to have made the attribution "on its own initiative using its own criteria". The details have been summarised by Cointelegraph from the complaint.

Procedural status, expressly: All of these particulars come from the claimant's own submissions. No court has examined them. Tether has not commented publicly on this suit so far, on the account of the outlets reporting it. How the proceedings end is open.

What is notable about the case is less the sum than the point of attack. Conduit does not dispute that Tether can block an address technically. What is disputed is that the terms of service cover it in this situation.

The Second Case: 42.4 Million USDT and Tether's Own Answer to It

The Conduit suit is not the only attack on the discretion clause. Roughly a month earlier, two Thai businessmen had sued Tether over 42.4 million USDT said to have been frozen. Those funds are connected to fraud proceedings over a total of $61 million being conducted in the United States. Here too, nothing has been decided.

On those proceedings Tether has spoken, calling the suit "a baseless attempt to interfere with Tether's important work with global law enforcement". That is the company's position, and it describes at the same time where it stands on the substance: Tether understands the freeze function as a tool against crime.

That the tool is used on a large scale is documented. In September 2026 we reported on $550 million in frozen Iran-linked USDT and the attendant pressure from the US Senate. Both readings of the clause thus meet the same practice: for law enforcement it is effective, for someone wrongly caught by it there is little to attack.

Self-Custody Secures the Key, Not the Validity of the Token

A widespread misconception holds that your own wallet protects you against a freeze. It does not, and the reason lies in the division of labour between key and token.

Your private key proves that you are entitled to dispose of an address. Nobody can take that proof from you as long as you keep the key safe. Whether a transfer from that address goes through, however, is decided by the issuer's program. With Bitcoin the two roles coincide, because there is no issuer. With a stablecoin they stay separate.

In practice, that means a hardware wallet protects you against theft, against an exchange outage and against the insolvency of your trading venue. Against a decision by the issuer it does not protect you. Hold USDT as a long-term store of value and moving it into your own wallet does not shift that risk. For that, the asset itself would have to change.

MiCA and USDT: What the Missing Authorisation Means for Holders in Germany

In the European Union the Markets in Crypto-Assets Regulation, MiCA for short, governs who may issue and trade stablecoins. Tether has not applied for authorisation of USDT as an e-money token, and large venues have therefore stopped or restricted USDT trading for customers in the EU. The obligations behind that are set out in our overview of the MiCA duties for crypto companies.

E-money token, in brief: An e-money token is a stablecoin tied to a single official currency whose issuer needs a permission from a supervisory authority for it. With the permission come requirements on reserves, redemption and complaint procedures.

For holders in Germany that has one consequence which runs counter to expectation. The less USDT is traded at supervised European venues, the more often it sits in a self-custodied wallet or with a provider outside the EU. Both routes bypass the European complaints channel and end up at the terms of service from section one. Our report on the Revolut forced conversion by August 31, 2026 shows how that retreat plays out in practice.

Stablecoin Alternatives: USDC and EURC Compared as E-Money Tokens

Anyone looking to limit the discretion risk has two levers. The first is the issuer, the second the holding period.

On the issuer: USDC and EURC are authorised in the EU as e-money tokens. Authorisation does not rule out a freeze, because those tokens also carry a freeze function in their program. What it changes is the rules around it, because the issuer is subject to supervision, has to meet redemption obligations and has to offer a complaints procedure. Which stablecoin is built which way is set out in the stablecoin comparison.

The second lever is about habit. A stablecoin is built as a way station, for the leg between two trades or between two networks. The longer a six-figure amount sits there, the larger a risk grows that has nothing to do with price movement. For short legs USDT stays practical because of its liquidity. As a store over months it is the costlier choice, even when the price looks quiet.

What a Holder Can Draw From the Clause: Four Things to Check on Your USDT

From the wording and from the two sets of proceedings, four verifiable points can be drawn. None of them calls for legal knowledge.

First, the address. Look up in the blockchain explorer whether your receiving address is on the blacklist. It takes two minutes and costs nothing.

Second, provenance. In the known cases a freeze hits addresses that show a connection to an investigation, including an indirect one through a former business partner. Accept payments from unknown third parties and you raise that risk without hearing about it.

Third, spread. A single pot is the most vulnerable form of storage. Conduit describes exactly that position in its complaint: one wallet serving as the business account, and with the freeze the business stood still.

Fourth, the records folder. Keep purchase records, transfer confirmations and correspondence to hand so that you can set out the provenance of an amount without a long search. In both pending cases the dispute turns on exactly that chain of evidence.

USDT Freezes: Without Your Own Keys, Tether's Clause Decides Alone

The clause has been in the terms for years; what is new is only that it is being tested in court. Until then it remains the yardstick you set your own conduct by.

1. Work out which stablecoin you use for what. For the leg between two trades, liquidity counts; for sitting longer, the issuer's legal framework counts. The differences are in the stablecoin comparison.
2. Separate custody from trading. What you do not actively trade belongs in your own custody. Which devices do the job is shown in the hardware wallet comparison.
3. Pick your venue by its authorisation. A supervised provider gives you a complaints channel that a contract under foreign law does not. Which houses hold a European permission is set out in the overview of regulated crypto exchanges.

(As of October 8, 2026. This article is not investment advice. Prices and fee structures change; check the terms with the provider before you buy.)