USDC Blacklist Raises Concerns in the Decentralized Finance Industry

Recently, a centralized stablecoin issuer blacklisted a certain address, raising concerns in the cryptocurrency community about the future development of the Decentralized Finance industry.

In March of this year, affected by the COVID-19 pandemic, the cryptocurrency market suffered heavily, and the decentralized stablecoin DAI was no exception. To cope with the crisis, the MakerDAO community decided to introduce a stablecoin pegged to the USD as collateral. However, this decision brought about unexpected consequences.

Recently, a stablecoin issuing organization blacklisted an address and froze approximately $100,000 worth of stablecoins at that address at the request of law enforcement. The organization stated that they have the right to carry out such actions based on a court order from a jurisdiction, but they cannot disclose further details.

Addresses on the blacklist will be unable to receive or transfer the stablecoin. This incident has raised questions within the industry regarding the level of decentralization of DAI. The CEO of a certain DeFi lending protocol pointed out that if the frozen stablecoins are stored in a Maker Vault, it could affect the peg of DAI to the USD.

Some industry insiders believe that although DAI has the advantage of hedging financial risks as a USD-pegged stablecoin, if its collateral can be blacklisted, it may affect the underlying operations of DeFi protocols.

It is noteworthy that this is not the first time such a situation has occurred in the cryptocurrency industry. According to analysis, another major stablecoin issuer has blacklisted 39 Ethereum addresses since November 2017, involving amounts as high as several million dollars.

The practice of these centralized institutions choosing to cooperate with law enforcement and unilaterally blocking related transactions is contrary to the decentralized principles advocated by cryptocurrencies. However, according to the policy documents of a certain stablecoin issuer, failing to do so may pose a threat to its network.

An industry expert stated that a small amount of frozen transactions may not affect the market position of stablecoins, but if this trend becomes the norm, it may give regulators greater influence.

A representative from a certain DeFi venture capital fund pointed out that there are still centralization issues in the DeFi industry. He stated that if the issuer of a stablecoin is a centralized entity, it could arbitrarily block transactions or freeze assets.

A blockchain technology expert summarized that this event highlights the continuous growth of demand for Bitcoin globally. Although Bitcoin still faces volatility issues, it remains the preferred choice as an indivisible and unstoppable value transfer tool, provided that users avoid trading on centralized exchanges.