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Tether Blacklists Account Preventing $20M Loss Through Hacking Scheme

As Tether again stopped a scam in its tracks by blacklisting a hacker’s account, users are reminded about the powers they hand to centralized money issuers.

On August 1st, Tether prevented $20 million USDT from going to the wrong hands by blacklisting a hackers account shortly after they performed a zero-transfer scam.

Zero-transfer scams are a relatively new hacking scheme that exploits users’ need for speed and simplicity to lead them to send funds to phishing accounts.

The similarly looking addresses from the original twit about the scam. Source: HshHah345 Twitter

By sending dust transactions (zero-transfers) to a user’s wallet from an address with the same start and ending letters as a legitimate address that the user frequently trades with, hackers mistake users into sending funds to a phishing wallet. (Most people check for only the starting and ending letters on the accounts)

After a zero-transfer attack happened to a “very experienced crypto operator” when sending $20 million USDC on Tuesday, Tether used the power inscribed in its code to blacklist the hacker’s account.

It is not the first time the team behind the stablecoin has stopped a hack in progress, and so far, it has banned 918 addresses holding over $470 million USDT.

Stablecoins have become an essential instrument, not only in crypto industry, but also in real world transactions. Yet to depend on this form of money comes with its risks, one of the most striking being the private character of the companies behind stablecoins that don’t have to uphold the same legal standards as national currencies.

All the major stablecoins are centralized, Tether’s USDT, Circle’s USDC, and Binance’s BUSD. The risks of privately managed public money came to light earlier this year after Circle announced it had $3.3 billion worth of assets in the collapsed Silicon Valley Bank, leading USDC to lose its peg to the dollar. The immediate, albeit momentary, effect was the loss of purchasing power of millions of people - a desperate situation for those on the bottom of the social pyramid.

According to data from Glassnode, in the last twelve months the dominance of Tether went from 49% to 69% in the $125 billion stablecoin market. As a centralized entity, Tether has the power to not only blacklist accounts but also to freeze or reverse transactions and create and destroy USDT - dangerous powers for a private non-accountable company to have over people’s money.

While for now, the parent company of USDT has only used its smart contract’s ability to prevent hacking attacks from being successful, there are no guarantees that its good Samaritan stance will continue into the future, a risk aggravated by the increased market dependency on it.