Analysis of Centralized Stablecoin Freezing Events and Their Impact

USDT, as a centralized stablecoin pegged to the US dollar, not only possesses the characteristics of cryptocurrency anonymity and permissionless use, but also grants the issuer significant regulatory powers. This allows the issuer to mint or burn tokens for specific addresses, or restrict certain addresses' usage rights for USDT, known as the "freezing" operation.

Such freezing actions are usually initiated at the request of law enforcement agencies or due to significant security incidents, aimed at preventing illegal activities and protecting damaged assets. However, as the application of USDT in the financial system becomes increasingly widespread, the number of illegal activities involving cryptocurrencies has also increased, leading to more frequent freezing incidents. This has had a significant negative impact on many Web3 enterprises that operate normally but inadvertently receive risky funds, and it may even trigger legal issues.

The following will conduct an in-depth analysis of the case where Cambodia's Huiwang Group encountered the freezing of 29.62 million USDT.

Huiwang Group Business Overview

Huiwang Group is a large financial group in Cambodia, with businesses covering areas such as cryptocurrency wallets, payments, trading guarantees, insurance, and exchanges. Its core payment and guarantee services make extensive use of USDT. According to data from the on-chain risk capital monitoring management platform, the official and user addresses of HuionePay and HuioneGuarantee exceed 180,000, making it the largest scale cryptocurrency enterprise in the region, with influence spanning Southeast Asia and East Asia.

Data shows that from June 2022 to June 2024, the monthly funding scale of all known HuionePay and HuioneGuarantee business addresses continued to rise, increasing from 1.03 billion USDT in June 2022 to 8.39 billion USDT in April 2024, with a total funding scale of 102.397 billion USDT over the two years.

During the same period, these business addresses maintained a high level of reserves. From June 2022 to June 2024, the daily average balance of all known HuionePay and HuioneGuarantee business addresses reached 35.68 million USDT.

However, due to Southeast Asia being a high-incidence area for illegal cryptocurrency activities, the business address of Huiwang has been affected to some extent. For example, a core business address of HuioneGuarantee had a total inflow of 2.158 billion USDT from July 1, 2023, to June 30, 2024, which included a certain proportion of high-risk funds, such as online gambling, black and gray market transactions, money laundering, and fraud.

Frozen Event Analysis

On July 13, 2024, an address on the TRON network was restricted, and 29.62 million USDT were frozen and unable to be transferred. Preliminary investigations showed that just five days after the address was created, the total trading volume exceeded 1 billion USDT, receiving a large amount of funds from HuionePay users and official addresses.

Further investigation reveals that this freeze may be related to a previous theft incident at a certain exchange in Japan. The stolen assets were exchanged through cross-chain swaps into the HuionePay system. Specifically, approximately 610 bitcoins were transferred to other blockchains through different cross-chain bridges, then converted into about 31.82 million USD stablecoin, with around 14 million USD ultimately entering the frozen address.

It is worth noting that this is not the only security incident involving Huiwang. In another exchange theft incident, at least 1.05 million USDT in funds were also transferred to HuionePay's user addresses and official business addresses.

Although there is currently no direct evidence to suggest that the freeze is directly related to these security incidents, considering that other business addresses of Huiwang have not been affected, this freezing action does not seem to be aimed at Huiwang Group itself.

The Impact of Freezing Events

The frozen 29.63 million USDT accounts for about 75% of Huiwang's reserves, putting certain pressure on its business. To cope with this situation, Huiwang has activated a new business address to handle user deposit and withdrawal requests.

Analysis of the newly activated business address shows that despite experiencing a large outflow of funds, Huiwang promptly replenished reserves from other business addresses, allowing it to meet users' withdrawal requests. As of the latest data, the new address still maintains a balance of 12.88 million USDT.

This event highlights the double-edged sword effect of centralized stablecoins in the current cryptocurrency ecosystem. On one hand, it provides law enforcement agencies with tools to combat illegal activities; on the other hand, it poses potential risks to businesses operating normally. For financial service providers like Huiwang, finding a balance between compliance and business development will be an ongoing challenge.