The shock of a crypto scam is profound. Often, it seems as if the invested capital is irretrievably lost once it falls into the hands of fraudsters on a decentralized blockchain. The common belief that cryptocurrencies like Bitcoin or Ethereum are unassailable and unrecoverable contributes to this feeling of powerlessness. However, there is an important exception that many investors are unaware of: Centralized stablecoins like Tether (USDT) or USD Coin (USDC) offer, under certain circumstances, the possibility of freezing stolen funds and thus paving the way for their recovery.
The technical mechanism: A central lever in the decentralized world
Unlike fully decentralized cryptocurrencies like Bitcoin, stablecoins such as USDT and USDC are tokens issued by centralized entities (Tether and Circle). These issuers retain a degree of control over their tokens, which is directly programmed into the respective token's smart contract. This contract includes administrative functions that allow the issuer to intervene at the direction of law enforcement or in compliance with regulations.
The most important of these functions are:
- Blacklist: An address that is blacklisted can no longer carry out any transactions.
- Freeze: The tokens located at an address are blocked and can no longer be moved.
- Wipe: Ultimately, the frozen tokens can be removed from one address and transferred to another address, for example, that of the defrauded investor.
This issuer-level control is a crucial difference compared to other crypto assets. Even if the fraudster possesses the private key, they can no longer access the frozen funds. The assets are immobilized in the perpetrator's wallet, providing a critical time advantage for further legal action.
The practical process: From fraud to the freeze
For victims of crypto fraud involving stablecoins, this results in a concrete action plan. The operational process in practice generally follows these steps:
- Detection of fraud and immediate response: Once the fraud is noticed, quick action is crucial, as the perpetrators often try to transfer the funds within hours.
- Blockchain analysis: A specialized service provider or law firm can trace the transaction chain to identify the wallet address where the stolen funds are located.
- Contacting the issuer: With a detailed tracing report, a description of the facts, and ideally a police report, the issuer (Circle or Tether) can be contacted. A letter from a lawyer significantly increases the chances of success.
- Implementation of the freeze: After reviewing the facts, the issuer's compliance department can initiate the appropriate steps and freeze the target wallet. This process can take only a few hours in the best-case scenario, but realistically, it takes 1-3 days.
The legal levers: How the freeze enables recovery
Freezing the funds is the first and most important step in securing the assets. It creates a crucial negotiating leverage, as the perpetrator can no longer access the funds. Simultaneously, civil claims against the perpetrator must be pursued. These include, in particular, claims based on unjust enrichment (Section 812 of the German Civil Code) and tort claims (Section 823 Paragraph 2 of the German Civil Code in conjunction with fraud, Section 826 of the German Civil Code).
The freeze serves as a kind of preliminary safeguard, securing the eventual enforcement of a judgment against the offender. In many cases, the pressure created by the freeze leads to an out-of-court settlement or compromise, as the offender has an interest in resolving the matter in order to potentially regain access to other funds not affected by the measure.
Conclusion: A decisive advantage for fraud victims
The ability to freeze centralized stablecoins like USDT and USDC is a crucial advantage for victims of crypto fraud. It breaks the anonymity and inviolability of the blockchain, providing those affected with an effective tool to secure their lost assets. Close collaboration between specialized lawyers, blockchain analysts, and the issuers of the stablecoins is key to success in this endeavor.
If you have fallen victim to a crypto scam involving stablecoins, don't waste any time. Contact a law firm specializing in crypto law immediately to assess your options and take the necessary steps. Our experienced lawyers will support you with their expertise in asset recovery and crypto fraud, helping you enforce your claims.
