The Power to Freeze: How Stablecoins Carry U.S. Financial Sanctions onto the Blockchain

On 23 April 2026 Tether, the issuer of the USDT stablecoin, said it had helped the U.S. government freeze more than $344 million of USDT held at two addresses, acting on information from the U.S. Treasury’s Office of Foreign Assets Control (OFAC) and American law enforcement. The next day OFAC added both addresses, which sit on the TRON blockchain, to its sanctions listing for the Central Bank of Iran. On 14 July it added four more, and over $130 million of USDT in those four wallets was frozen as well.

That a central bank should have to get its dollars through a token issued by a private company says a good deal about how far sanctions had already pushed it. When the Treasury sanctioned Nobitex, Iran’s largest digital-asset exchange, on 2 June, it said the exchange had helped the Central Bank of Iran obtain hundreds of millions of dollars in stablecoins to prop up the collapsing rial. Shut out of the American banking system, Iran went looking for dollars on-chain, and found that they could be frozen there too.

Dollar stablecoins were meant to be a way around the banks. Instead they have carried Washington’s power to freeze onto the blockchain. What makes a freeze possible is not the technology but the issuer. If a company stands behind the token and is willing, or legally obliged, to follow American orders, dollars in a wallet can be frozen just like dollars in a bank account. The stablecoin law America passed in 2025 turns that willingness into an obligation.

Where the power to freeze comes from

America can freeze other people’s dollars because of where the dollar sits in global finance. The Bank for International Settlements (BIS) found in its April 2025 survey that the dollar was on one side of 89% of all foreign-exchange trades, in a market turning over $9.6 trillion a day. IMF data put the dollar at 56.7% of allocated foreign-exchange reserves in the second quarter of 2026, and SWIFT figures show that, leaving aside payments within the euro area, almost 60% of international payments over its network in August 2026 were in dollars. A 2025 note by Federal Reserve economists adds that between 1999 and 2019 around 74% of trade in the Asia-Pacific region was invoiced in dollars.

Most of those payments are eventually settled through American banks. Foreign banks hold correspondent accounts with U.S. banks and settle through CHIPS or the Federal Reserve’s Fedwire; CHIPS alone clears more than $2 trillion on an average day. This is dollar clearing: even when neither party is in America, the money passes through an American bank’s books, and American law comes with it.

In 2019 the political scientists Henry Farrell and Abraham Newman called this kind of power weaponized interdependence. Global economic networks tend to form around a few hubs, and a state that controls a hub can see what flows through it and shut adversaries out, provided it has jurisdiction over the hub and the domestic institutions to act. One of the two cases they used to test the idea was SWIFT.

The cut-off can be blunt. On 28 August 2026 the Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed, under Section 311 of the USA PATRIOT Act, to bar American financial institutions from opening or keeping correspondent accounts for Banque Misr UAE, and to require them to take reasonable steps not to process transactions involving the bank through the U.S. correspondent accounts of other foreign banks. The Treasury estimates that between January 2024 and June 2026 the bank processed about $1.8 billion for 103 companies that may belong to Iranian shadow-banking networks, and calls it a critical node in Tehran’s access to dollars.

Launching “Operation Economic Outcast” against Iran on 24 August, Treasury Secretary Scott Bessent warned that “any entity that facilitates money laundering on behalf of Iran will be removed from the U.S. dollar system.” New sectoral determinations covering digital assets, technology, gold, aviation and shipping broadened the reach of secondary sanctions. The pressure does not depend on anyone actually being punished: once losing dollar access costs enough, banks in third countries pull back on their own. How sanctions reach third parties through currency, clearing and insurance is covered in the explainer If You Never Sold to a Sanctioned Party, Why Do Sanctions Still Reach You?

How stablecoins carry the freeze on-chain

A stablecoin is a privately issued token pegged to a national currency, backed by reserves such as cash and short-term government debt and redeemable at par. A paper by BIS economists published in May 2026 put the market above $300 billion, around 98% of it pegged to the dollar. The largest coin, USDT, is issued by Tether, which is headquartered in El Salvador; about $184.6 billion had been issued by the end of June, more than 60% of the stablecoin market.

In much of the world a stablecoin is a way of holding dollars without going through a domestic bank. The BIS paper argues that stablecoins are most likely to affect the private store-of-value and medium-of-exchange roles of money, particularly in economies facing macroeconomic instability, and notes that America’s GENIUS Act “explicitly aims to maintain dollar dominance” by making room for compliant stablecoins backed by dollar reserves. A large share of those reserves sits in Treasury bills: Tether says its direct and indirect exposure to them was about $141 billion at the end of March. The more stablecoins circulate, the more short-term American government debt they absorb.

The freeze is written into the token itself. Balances are recorded in a smart contract the issuer controls; the issuer can blacklist an address so that the tokens in it cannot move, and if need be cancel the frozen tokens and reissue them to law enforcement. Circle’s terms for USDC say it may block transfers to and from an address under its blocklisting policy, and may be required to freeze USDC when it receives a legal order from a government authority. Tether says it has aligned its freezing policy with OFAC’s Specially Designated Nationals (SDN) list, extending sanctions controls to wallets on the secondary market.

That marks a real difference from a bank account. The freeze attaches to the address, whether or not the holder is the issuer’s customer. A bank can freeze its own customers’ accounts and the payments that pass through it; a stablecoin issuer can freeze any address holding its tokens, even one that has never dealt with it. And since the ledger is public, investigators can follow the money across the chain. Farrell and Newman’s two effects, seeing and shutting out, apply to dollar stablecoins at once. By Tether’s own account, it has worked with more than 340 law-enforcement agencies in 70 countries and frozen over $5 billion of assets, more than $2.4 billion of it connected to American authorities.

The GENIUS Act: no freeze, no issuance

On 18 July 2025 President Donald Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act, known as the GENIUS Act. It turns what had been an issuer’s own decision to freeze into a condition of issuing at all.

The act defines a “lawful order” as a final and valid order issued under federal law by a court or an authorised federal agency, requiring an issuer to seize, freeze, burn or prevent the transfer of stablecoins it has issued. The order must identify the coins or accounts with reasonable particularity and be open to judicial or administrative review. A permitted issuer may issue stablecoins only if it has the technological capability to comply, and will comply, with any such order. Issuers are treated as financial institutions under the Bank Secrecy Act, must run a sanctions-compliance programme, and need the technical means, policies and procedures to block, freeze and reject impermissible transactions.

For issuers outside the United States the lever is market access. A digital-asset service provider may not offer a foreign issuer’s stablecoin in America unless the issuer can comply, and does comply, with lawful orders. If it does not, the Treasury can designate it noncompliant and notify it in writing; if it has still not complied 30 days later, the finding is published in the Federal Register, and 30 days after that, service providers may no longer facilitate secondary trading of the coin in America. A service provider that knowingly breaches the ban faces fines of up to $100,000 per violation per day; a foreign issuer that keeps offering the coin publicly in America after the finding is published, up to $1 million.

As of late October 2026 the implementing rules were still being finalised. The Office of the Comptroller of the Currency (OCC) issued its final rule implementing the act on 21 October; it takes effect with the act itself on 18 January 2027 but leaves anti-money-laundering and sanctions requirements to a separate rulemaking. A proposal published by FinCEN and OFAC in April would require issuers to be able to block, freeze and reject transactions across both primary and secondary-market activity, so the freeze would reach beyond customers who mint and redeem directly with the issuer. That rule is still only a proposal.

The act also sets a deadline. From 18 July 2028, service providers may not offer people in America stablecoins from issuers that have not been approved, with an exception for qualifying foreign issuers. Tether is running on two tracks. In January 2026 it launched USA₮ for the American market, issued by the federally chartered Anchorage Digital Bank, while USDT continues to circulate worldwide; Tether says USDT is “progressing towards GENIUS Act compliance”.

When Tether helped freeze the Iranian central bank’s money in April, the GENIUS Act was not yet in force. A report published in September by Democratic staff of the Senate Permanent Subcommittee on Investigations notes that Tether has described its compliance with OFAC sanctions as “voluntary”. Once the law takes effect, that cooperation is no longer only a business choice: to circulate in the American market, a stablecoin will first have to show that it can be frozen. Market access is the most practical lever Washington has over an offshore company, and USDT’s reserves, mostly American government debt, already tie it to the American market.

Where the freeze cannot reach

A freeze needs someone to take the order. On 8 August 2022 OFAC added the crypto mixer Tornado Cash to its sanctions list. On 26 November 2024 the Fifth Circuit Court of Appeals held that Tornado Cash’s immutable smart contracts are not the “property” of a foreign national or entity, so they cannot be blocked under the International Emergency Economic Powers Act (IEEPA), and that OFAC had overstepped its authority. The Treasury lifted the sanctions in March 2025. Once code is immutable, not even its developers can change it, which leaves no one to carry out a freeze.

A freeze also has to come before the money moves. The Senate staff report analysed 846 wallets sanctioned or targeted for seizure over links to Iran and its proxies and found that 84% transacted exclusively or nearly exclusively in USDT. It also says that before 2024 Tether did not “comprehensively and consistently freeze” wallets designated by counter-terrorism agencies, and that in one case $34.6 million kept moving after designation. The report is the work of minority staff, not a finding of the Senate, but it does not contradict Tether’s record of freezes: until it is frozen, a dollar stablecoin is as useful to a sanctioned actor as to anyone else.

Adversaries can also issue tokens of their own. A7, a shadow-banking network with ties to Russia, created A7A5, a rouble-backed token whose issuer, Old Vector, OFAC sanctioned in August 2025. On 1 October 2026 the Treasury designated the A7 network a significant transnational criminal organisation, citing the network’s own claim that as of January 2026 it handled more than 2,000 transactions a day, with a total volume above 7.5 trillion roubles, about $91.5 billion or roughly 13% of Russia’s foreign-trade transactions in 2025. According to the Treasury, the Central Bank of Iran, the Islamic Revolutionary Guard Corps and Iran-backed terrorist organisations have all used the network to move money.

With A7A5’s issuer already under sanctions, Washington has little chance of getting it to freeze anything. But the network still relies on agent companies in third countries to get in and out of international payment systems, so FinCEN has proposed banning funds transfers involving those agents and issued an alert to help banks spot them. An alternative token can grow, but somewhere along the line trade payments and currency conversions have to reconnect with the international financial system, and that is where the pressure lands. How Russian oil was rerouted under sanctions is covered in Oil Tankers Bound for India: How the Russia-Ukraine War Turns Energy Sanctions into Great Power Leverage.

The BIS paper makes the broader point: the use of dollar-based financial infrastructure for sanctions has given some actors more reason to look for other payment channels, and stablecoins could become partial workarounds that make enforcement harder.

Why the alternatives do not travel far

The ways out most often mentioned are China’s Cross-border Interbank Payment System (CIPS), the multi-central-bank platform mBridge, the digital yuan and the digital euro that Europe is still preparing. Each has made progress; none comes close to the dollar’s reach.

CIPS is certainly growing. At the end of September 2026 it had 214 direct and 1,651 indirect participants in 133 countries and regions, and in 2025 it handled 8.44 million payments worth 180.15 trillion yuan, although that value was only 2.7% higher than the year before. But CIPS settles renminbi, so it is useful only once both sides have agreed to deal in renminbi. Nor has it replaced SWIFT: the Bank of Finland Institute for Emerging Economies (BOFIT) noted in 2022 that CIPS relies heavily on SWIFT to transmit payment information.

The renminbi’s share of international payments is still small. By SWIFT’s count, leaving aside payments within the euro area, it accounted for 2.38% of international payments in August 2026, behind the dollar, the euro, the yen, sterling and the Canadian dollar; the dollar’s share was 59.87%. The renminbi’s share of currency trading has risen steadily since 2013, but in 2025 it was still only 8.5%.

mBridge takes a different route. Developed from 2021 by the BIS Innovation Hub with the People’s Bank of China, the Hong Kong Monetary Authority, the Bank of Thailand and the Central Bank of the UAE, and joined by Saudi Arabia’s central bank in 2024, it lets central-bank digital currencies settle directly across borders on a shared platform. The BIS announced in October 2024 that it was handing the project over to its partners. Agustín Carstens, then its general manager, said at the time that mBridge was “many years away” from operating, and that BIS products cannot be used by countries subject to sanctions. Citing Atlantic Council figures, Reuters reported in January 2026 that mBridge had processed more than 4,000 cross-border transactions worth a cumulative $55.5 billion, about 95% of it in digital yuan. That cumulative total is less than 3% of what CHIPS clears on an average day. An Atlantic Council analyst judged that mBridge “is unlikely to challenge dollar dominance directly, but it may incrementally erode it”.

The digital yuan entered its “2.0” phase in January 2026: balances in commercial-bank wallets became bank liabilities, and real-name wallets now earn interest. By the end of September cumulative transactions in the areas where it is offered had reached 4.3 billion, worth about 31 trillion yuan, and in September 2025 the People’s Bank of China opened an international operations centre for the digital yuan in Shanghai. But those figures come from the parts of China where it is available. To work as an international means of payment, the digital yuan too needs counterparties willing to hold renminbi.

America has chosen another path. An executive order signed by President Trump in January 2025 makes it administration policy to promote lawful dollar-backed stablecoins worldwide, and bars federal agencies from establishing, issuing or promoting a central bank digital currency. Rather than issue a digital dollar, Washington has left putting the dollar on-chain to private issuers, and uses the GENIUS Act to keep those issuers in line.

The digital euro is furthest behind, and it is meant to solve a different problem. In October 2025 the ECB decided to move to the next phase: if the legislation is adopted during 2026, a pilot could start in mid-2027 and a first issuance could follow in 2029. The Council of the EU agreed its negotiating position in December 2025, and in July 2026 the European Parliament endorsed opening negotiations, which were still under way in late October; as of September, holding limits had not yet been discussed at political level. Piero Cipollone, a member of the ECB’s Executive Board, said in an interview published in October that two-thirds of the card payments behind online purchases in Italy run through non-European card schemes, leaving Europe “heavily dependent on an infrastructure over which we have no direct control”.

The alternatives share a limit. Those that escape American jurisdiction do not reach far enough; those that reach far enough do not escape Western sanctions. CIPS, mBridge and the digital yuan run mainly on renminbi and need counterparties willing to hold it; a digital euro, once it exists, will still be euros governed by EU law. For a sanctioned state the euro is no safer than the dollar: at the end of June 2026, €202 billion of the balance sheet of Euroclear, the Belgian securities depository, related to sanctioned Russian assets.

The numbers reflect the market’s choices. IMF data show the dollar’s share of allocated reserves barely moving, from 56.9% in the second quarter of 2025 to 56.7% a year later, with the renminbi at around 2%. Stablecoins make the point more plainly. According to the data platform DefiLlama, euro-pegged stablecoins totalled about $890 million on 25 October and renminbi-pegged ones less than $500,000, a rounding error in a stablecoin market worth more than $300 billion.

What it means for Taiwan

Taiwan sits in the dollar system’s inner circle. Its central bank held $600.7 billion of foreign-exchange reserves at the end of September, and life insurers’ overseas investments came to about NT$22.45 trillion at the end of June, 65.5% of the funds they invest. The central bank’s financial stability report, published in May, notes that insurers’ liabilities are mostly New Taiwan dollar policies while their foreign-currency assets far exceed their foreign-currency policies. Figures from the Financial Supervisory Commission (FSC) show that when the New Taiwan dollar rose 4.27% against the U.S. dollar in 2025, life insurers booked exchange losses of NT$548.5 billion for the year. Since 2013, dollar payments between banks in Taiwan have been able to settle on a foreign-currency clearing platform set up by the central bank, with Mega International Commercial Bank acting as the dollar clearing bank.

For Taiwan, the dollar’s power to freeze is rarely aimed at the country itself. Its cost comes as compliance, and it falls first on banks and companies. In 2016 New York’s Department of Financial Services fined Mega Bank $180 million for violating the state’s anti-money-laundering laws at its New York branch, and required an independent monitor to review whether transactions from 2012 to 2014 complied with OFAC sanctions rules. The same bank clears dollars on Taiwan’s domestic platform. Operation Economic Outcast gives every country a defined timeline to shut down the activities Washington has identified, and the nodes the Treasury has named so far include a bank in the UAE and a front company in Hong Kong. Taiwanese banks and traders with frequent business in either place have reason to look again at their counterparties.

Stablecoins add another layer. A freeze attaches to an address, whoever holds it, so a Taiwanese exporter that accepts USDT from a customer needs to know where the payment comes from: coins at a frozen address cannot be sent at all, and coins from a sanctioned address bring the sanctions problem with them. Screening the paying wallet belongs in trade compliance, alongside vetting the counterparty before opening a letter of credit.

Taiwan’s own rules are taking shape. The Legislative Yuan passed the Virtual Asset Service Act on 30 June 2026 and it was promulgated on 22 July; it takes effect on a date to be set by the Executive Yuan. Issuing a stablecoin in Taiwan will require a licence from the FSC, which must first obtain the central bank’s consent. Issuers must hold full reserves at domestic financial institutions, placed in trust, issue and redeem at par, and pay no interest. A virtual-asset service provider that wants to offer a stablecoin issued elsewhere, such as USDT, will in principle need the FSC’s approval to trade it.

The central bank’s focus is foreign-exchange control. Governor Yang Chin-long told legislators on 9 July that stablecoins should in future be issued by banks: a New Taiwan dollar stablecoin would be relatively easy to supervise, while dollar stablecoins are more complex and would initially be regulated along the lines of the foreign-exchange rules for designated banks. Materials released after the central bank’s June board meeting said it would bring stablecoin transactions into the existing foreign-exchange framework and set up a reporting mechanism for stablecoin transfers. On 20 October the FSC amended its anti-money-laundering rules for service providers so that every transfer of virtual assets between domestic providers must carry information on the sender and the recipient, with more identifying details required above NT$30,000.

Unlike the GENIUS Act, the Virtual Asset Service Act does not make the technical ability to freeze on order a condition of issuance. It requires service providers to keep monitoring addresses reported to them by the police, and lets the FSC order or prohibit the disposal or transfer of specific assets when a provider breaks the law. If a Taiwanese stablecoin ever seeks the American market, the GENIUS Act’s terms for foreign issuers will be the bar it has to clear: the capability to comply with American lawful orders, and actual compliance.

What to watch

The GENIUS Act and the OCC’s rule take effect on 18 January 2027. After that, the questions are when FinCEN and OFAC finalise their anti-money-laundering and sanctions rule, and whether it keeps the freeze requirement for secondary-market activity; which countries the Treasury deems to have “comparable” regimes, opening the American market to their issuers; and the transition deadline of 18 July 2028. In Taiwan, the questions are when the Executive Yuan brings the Virtual Asset Service Act into force, and how the FSC’s and the central bank’s regulations deal with freezing and foreign exchange. In Europe, it is whether the digital-euro regulation is adopted by the end of the year, as the ECB hopes.

Blockchains have not weakened the dollar’s power to freeze; they have given it a new node, the issuer. As long as well over 90% of stablecoins are pegged to the dollar, the freeze will follow the dollar on-chain. The more often it is used, the stronger the incentive for those on the receiving end to find another way out, but none of the ways out yet goes very far.