USDC Blacklist Incident Raises Concerns in the Decentralized Finance Industry

Recently, a stablecoin issuing organization blacklisted a certain address, an action that has drawn widespread attention from the cryptocurrency community, especially in the rapidly growing Decentralized Finance sector.

In March of this year, due to the impact of the COVID-19 pandemic, the cryptocurrency market suffered a heavy blow, and the decentralized stablecoin DAI was no exception. To address the crisis, the MakerDAO community decided to introduce a stablecoin pegged to the US dollar as collateral. However, unexpectedly, the issuing entity of this stablecoin recently suddenly blacklisted an address and froze stablecoins worth 100,000 USD on that address at the request of law enforcement.

According to a spokesperson for the issuing agency, they are unable to provide specific details regarding the blacklist. The related freezing operation took place in mid-June, marking the first time this address has been blacklisted. The issuing agency stated that they can confirm whether certain addresses are blacklisted at the request of law enforcement, but cannot comment on the specifics of law enforcement requests and can only execute court orders with appropriate jurisdiction.

What is certain at present is that once an address is blacklisted, it will no longer be able to receive that stablecoin, and all related tokens controlled by that address will be prevented from transferring on-chain.

This event has raised questions in the industry about the level of decentralization of DAI. The CEO of a certain DeFi lending protocol stated: "If there are stablecoins currently in the Maker Vault, and the issuing organization uses the blacklist function to lock the funds in the Vault, it could undermine the peg of DAI to the US dollar."

Some industry insiders believe that although DAI, as a USD-pegged stablecoin, can effectively withstand financial risks, if the collateral can be blacklisted, it means that the underlying DeFi protocol may be affected or even compromised.

Although crypto companies operate in an unregulated environment, they still need to comply with the law. The chief advisor of a well-known project stated on social media: "In the past, people thought that stablecoin addresses being blacklisted was just 'talk', but now it has become a reality, bringing real risks to the Decentralized Finance industry."

It is worth noting that this is not the first "blacklist" incident in the cryptocurrency industry. According to analysis by a blockchain development company, another well-known stablecoin issuer has already blacklisted 39 Ethereum addresses since November 2017, involving amounts as high as several million USD.

The practices of these centralized companies choosing to cooperate with law enforcement and unilaterally blocking relevant transactions are contrary to the decentralized principles advocated by cryptocurrency enthusiasts. However, according to the policy documents of a certain issuing institution, failing to do so may pose a threat to their network, thus it is necessary to comply with court orders to blacklist the relevant addresses.

The chief technology officer of a certain crypto project stated: "A small amount of frozen transactions may not shake the market position of stablecoins, especially for traders. However, if this trend becomes the norm, it will undoubtedly set a bad precedent. If stablecoins with backdoors are widely adopted, regulators may exert greater influence."

A representative from a DeFi venture capital fund believes that there are still centralization issues in the DeFi industry. He explained: "If the issuer of a stablecoin is a centralized entity, they can do anything, including halting transactions, freezing assets, and so on."

Finally, industry insiders concluded: "This event highlights that the demand for Bitcoin continues to grow globally. Although Bitcoin remains volatile and its performance as a savings tool is not ideal, if one had to choose a non-divisible, unstoppable best value transfer tool, Bitcoin remains the first choice." Of course, the premise is not to trade on centralized exchanges.