The Freezing Mechanism of Centralized Stablecoins and Its Impact

In the cryptocurrency ecosystem, a well-known centralized stablecoin has garnered widespread attention due to its unique freezing mechanism. This stablecoin is pegged to the US dollar through smart contracts, and the issuer has the ability to mint, burn, and restrict the operational permissions of specific addresses. This centralized freezing mechanism is typically triggered by requests from law enforcement or significant security incidents, aimed at preventing illegal activities and protecting compromised assets.

However, as the application of the stablecoin in the financial system becomes increasingly widespread, incidents involving illegal activities are also on the rise, leading to more frequent freezing actions. This has had a negative impact on many Web3 businesses that operate normally but inadvertently receive risky funds, and it even brings legal risks.

Taking the recent incident where a financial group in Cambodia had nearly 30 million dollars in stablecoins frozen as an example, we can analyze this issue in depth.

This financial group is one of the largest cryptocurrency enterprises in Cambodia, covering multiple areas such as cryptocurrency wallets, payments, and transaction guarantees. According to on-chain data analysis, its core payment and guarantee business heavily utilizes this stablecoin, with related address numbers exceeding 180,000, influencing the entire Southeast Asia and even East Asia region.

From June 2022 to June 2024, the monthly capital scale of the group's business address continued to rise, growing from a minimum of $1.03 billion to a maximum of $8.39 billion, with a total capital scale of $102.397 billion over the two years. During the same period, its business address maintained an average daily balance of $35.68 million.

However, due to Southeast Asia being a high-risk area for illegal cryptocurrency activities, the group's business address is inevitably affected to some extent. Taking one of its core secured business addresses as an example, from July 2023 to June 2024, approximately 20% of the inflow funds were marked as high-risk funds, including online gambling, black and gray market transactions, money laundering, and fraud.

On July 13, 2024, a business address of the group was frozen, involving an amount as high as 29.62 million USD. Preliminary investigations indicate that the address processed over 1 billion USD in transactions just five days after its creation, receiving a large amount of funds from users of the group and official addresses.

Further investigation revealed that the freezing may be related to a previous hacking incident at a certain exchange in Japan. The stolen assets, after complex cross-chain operations, partially entered the payment system of the financial group. In addition, some funds from another exchange hacking incident were also found to have flowed into the group's address.

It is worth noting that the frozen 29.63 million USD accounts for 75% of the group's reserves, putting some pressure on its business operations. Analysis shows that after the freezing incident, the group activated new business addresses to handle user demands, experiencing a significant outflow of funds. However, the officials timely replenished the reserves from other business addresses and are currently still able to meet users' withdrawal requests.

This event highlights the double-edged sword effect of the centralized stablecoin freezing mechanism. While it helps combat crime and protect assets, it may also have unintended consequences for legally operating businesses. Striking a balance between maintaining financial security and protecting normal business development will be an important issue for cryptocurrency regulation in the future.