Tether Frozen in Poly Hack Returned to Owners, Fuelling Centralization Debate
The tether (USDT) that was frozen by its issuer Tether during the recent Poly Network hack have been returned to their rightful owners, Tether announced. However, this has raised concerns that this particular part of the cryptocurrency space is not as decentralized as it claims to be.
On Wednesday, the official Twitter account of Tether announced that they had unfrozen all the funds that were stolen in the Poly hack, after working closely with the network to follow all the “strict protocols” that were put in place.
They added that, “Freezing funds is not a matter we take lightly – in being the first to act, Tether demonstrated its commitment to security and continued vigilance in ensuring the community always comes first.”
Paolo Ardoino, Chief Technology Officer at Tether, explained the process in a thread on Twitter.
After being contacted by the Poly team, Tether’s tech team organized the multisig freezing process, Ardonio wrote. The address that they froze had received hundreds of millions of dollars’ worth in different cryptoassets, with no other previous activity like participating in centralized or decentralized exchanges, decentralized finance (DeFi) pools, etc. This, according to Ardoino, convinced them that the address belonged to the hacker, and the funds were frozen.
As for the legal procedure, users who want to report a hack will have to write an email to the designated address at Tether, and attach a Law Enforcement letter that corroborates the story and the freeze request. The claimant will also have to complete the Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) procedures that are usually reserved for banking grade customers.
After that, the process of returning the funds to the rightful owners can take up to several months, as the company ensures there are no other claimants.
On the other hand, many in the crypto community are worried that this means Tether is centralized—something that goes against the very pillars of the industry. Even in the face of disastrous hacks that cost users millions of dollars, many think that freezable funds are setting a dangerous precedent.
Just like legacy Banking, Tether USDT is CeFi, not DeFi, and this is very scary. The fact that they can monitor and freeze people’s funds at any given time is exactly one of major reasons why DeFi was created, to avert such thing.— Oliverrr! (@OliverBjm) August 25, 2021
Additionally, if a crypto project is powerful enough to freeze and reverse transactions—something that is theoretically impossible in a completely decentralized environment—many believe they should be kept to the same standards as other financial institutions.
Nicholas Weaver, senior staff researcher at the International Computer Science Institute in Berkeley, California, USA, writes:
“Despite the decentralized claims, there are a few entities that can (and should) be brought to heel, including ‘decentralized’ exchanges, those funding decentralized exchanges, cryptocurrency miners, and prominent stablecoins like Tether. In particular, these entities must be forced to implement effective anti-money-laundering controls.”
In the meantime, the victim of yet another recent hack, Japanese exchange Liquid Global, has secured a loan from crypto exchange FTX to use for Liquid capital position and to speed up capital generation projects, as well as provide liquidity.
They have added that, “Liquid is grateful for the vote of confidence from FTX and the valuable support of its users as it continues in its mission to serve the growth of blockchain-based financial services in a compliant manner.”