Payments firm Conduit is taking Tether to court after $2.76 million in USDT was frozen for over a year. The case puts a spotlight on how stablecoin issuers handle wallet freezes and what happens to reserve interest during these lockups.
Tether's power to freeze stablecoins is now facing a legal challenge. On October 5, 2026, Conduit Technology, a U.S. cross-border payments company, filed a lawsuit in the Southern District of New York. The fight is over $2.76 million in Tether USDt (USDT) that Conduit says has been locked in its treasury wallet since September 24, 2025. Tether has not given a clear reason or released the funds. At the time of the filing, the USDT had been blocked for more than a year. There was no public answer from Tether or any court decision about unfreezing the money.
Court records show Conduit started holding USDT in its digital treasury wallet in May 2025. The company used these funds as its own working capital. Conduit claims Tether froze the entire balance without warning. Tether linked the freeze to an ongoing Brazilian federal police investigation into Bull Intermediação de Negócios and Onix. But Conduit says its wallet was not named by authorities. The company argues Tether used its own internal rules to tie the wallet to the entities under investigation.
Conduit's lawsuit not only seeks the return of $2.76 million in USDT but also demands compensation for any income, interest, or profits Tether may have earned from the reserves backing the frozen tokens.
Conduit wants a court order to unfreeze the wallet, at least $2.76 million in damages, and for Tether to give up any interest earned on the reserves behind the frozen tokens. The complaint says Tether keeps making money from the freeze by investing the U.S. dollar reserves, mostly in U.S. Treasury securities, while the tokens stay out of reach. The legal claims include conversion of property, unjust enrichment, breach of fiduciary duty, computer fraud, declaratory relief, and a demand for a full report on Tether's reserves and income tied to the frozen assets.
This case questions how much freedom stablecoin issuers have, especially when law enforcement does not directly ask for a freeze. Conduit's lawsuit points to the risk that issuers can act on their own, which can disrupt legitimate business without clear rules or ways to appeal. In its filing, Conduit says it "owes Tether no money" and that Tether has "no legal right" to the frozen funds. These are still allegations, not proven facts.
Independent reports confirm the lawsuit and Conduit's claims. As of the latest updates, there is no court ruling, no order to unfreeze the funds, and no public statement from Tether about the case. The standoff brings new attention to the debate over centralized control in stablecoins and the risks for businesses that depend on fiat-backed tokens for liquidity and settlement.
Tether's ability to freeze USDT wallets is a longstanding feature, often invoked in response to law enforcement requests or security incidents. However, the lack of transparent criteria for such freezes has become a point of contention for institutional and retail users alike.
Stablecoins like USDT are widely used in cross-border payments, trading, and DeFi. But their centralized controls mean users can face sudden freezes. The Conduit-Tether dispute comes as big financial firms push for clearer rules on digital asset custody and stablecoin operations. For example, Deutsche Bank's move to get a MiCA license for institutional crypto custody, as reported earlier, shows that corporate clients want regulated, predictable handling of digital assets.
Right now, Tether USDt is still the largest stablecoin by circulating supply, with tens of billions of dollars in tokens outstanding. Market players, regulators, and institutions are watching Tether's reserve makeup, audit status, and wallet-freeze practices closely. They want to know their assets will stay accessible and safe from sudden intervention.
Conduit, founded in 2021, runs a platform that lets businesses move money between stablecoins and local fiat currencies. The outcome of its lawsuit against Tether could set a new standard for how stablecoin issuers handle wallet freezes, law enforcement requests, and interest earned on reserves during lockups.
Stablecoin users face risks that don't apply to holders of decentralized cryptocurrencies. Fiat-backed stablecoins offer price stability and fast settlement, but their issuers can freeze or blacklist wallets with little warning or explanation. This power can help stop crime, but it also creates counterparty risk for regular users. As stablecoins become more common in payments and finance, the industry will have to keep working out how to balance compliance, user protection, and certainty for businesses and individuals.
