Stablecoin freezes are usually discussed as a tool against hackers and sanctioned entities. A lawsuit filed in New York this week shows the other side: a payments company that says its working capital has been locked for more than a year, with no accusation, no explanation and no way to get it back except a federal court.
Cross-border payments firm Conduit is suing Tether over $2.76 million in USDT. Whatever the court decides, the case puts a precise number on a risk every USDT holder carries — including those who never let an exchange touch their keys.
Key facts
- Conduit sued Tether in the US District Court for the Southern District of New York; the complaint was filed on Monday, October 5, 2026, and reported by The Block on October 6.
- Conduit says Tether froze $2.76 million of its USDT and will neither release the funds nor explain why.
- Conduit seeks release of the $2.76 million plus another $2.76 million in damages and profits Tether allegedly earned on reserves backing the frozen tokens.
- The freeze is linked to a Brazilian Federal Police investigation of Onix Intermediações, a former Conduit customer that stopped using the platform in April 2025.
- Conduit says Brazilian police confirmed they never flagged its treasury wallet and a Brazilian court confirmed Conduit itself was not under investigation.
- Tether had not commented on the lawsuit as of the first reports on October 6, 2026.
Why is Conduit suing Tether?
Conduit is suing because, it says, Tether froze $2.76 million of USDT in the company’s treasury wallet, refuses to unfreeze it and has never explained the decision. The firm asks the Southern District of New York to order the funds released and to award a matching $2.76 million in damages and reserve profits.
According to The Block, the complaint is blunt: “Conduit owes no money to Tether and has no obligation to Tether.” Conduit moves money for clients across more than 100 countries using USDT and USDC, and it describes the frozen wallet as the “equivalent of [Conduit’s] operating bank account.”
The freeze reportedly began on September 24, 2025, which means the funds have been stuck for more than a year by the time of the filing. Reports say four Tether entities are named as defendants.
The damages claim
The second $2.76 million is the interesting part. Tether backs USDT with reserves that earn yield. Conduit argues that while its tokens sat frozen, Tether kept earning on the assets behind them — so it wants those profits too, on top of the principal.
How is Brazil involved?
The freeze traces back to a Brazilian Federal Police investigation into Onix Intermediações, a payments company that was once a Conduit customer. Conduit says Onix stopped using its platform in April 2025, about a month before the frozen wallet was even created, and that the wallet never held Onix funds.
Conduit’s complaint goes further. It says Brazilian police confirmed they never flagged its treasury wallet, and that a Brazilian court confirmed Conduit was not under investigation. If those claims hold up, the freeze was a precautionary step by Tether that outlived any reason to keep it.
A freeze with no accusation is still a freeze.
Can Tether freeze USDT in a self-custody wallet?
Yes. USDT is a centrally issued token, and Tether can block any address at the smart-contract level on the networks where it operates. Holding USDT in your own wallet protects you from an exchange collapsing or freezing your account; it does not protect you from the issuer itself. Your keys control the address, but Tether controls the token.
That’s the gap the Conduit case exposes. The company did everything a careful treasury might: it used its own wallet, not a custodial account. And still, according to the complaint, more than a year of operating cash ended up stuck because of a former client’s problems.
Freeze powers are spreading into law as well. Singapore’s new rules give its regulator explicit power to have stablecoins frozen or burned, as we covered in our piece on the MAS stablecoin law. Issuer control is a feature regulators want, not a bug that will be patched out.
What it means for swap users and merchants
For anyone who holds or accepts stablecoins, the lesson is to treat USDT as a dollar with a gatekeeper. Keep large balances where you can explain them, and don’t park more than you need in a single issuer’s token. With SwapZilla you can move between USDT, other stablecoins and native coins without an account, comparing quotes from licensed providers on the swap page; output goes to your own wallet. If you choose USDT, our guide to USDT networks covers the trade-offs. Merchants using SwapZilla Pay receive payments directly to their own wallets — which removes a payment processor’s custody, but not an issuer’s freeze button.
Also on October 6: Glamsterdam reaches Sepolia
In other news the same day, Ethereum’s Glamsterdam upgrade went live on the Sepolia testnet at around 13:53 UTC, after what CoinDesk described as a last-minute fix. The test raises Sepolia’s gas limit from 60 million to 200 million — a preview of the capacity jump developers are aiming for on mainnet.
Final thoughts
Conduit v. Tether is a $2.76 million case, small next to USDT’s footprint. But it asks a big question in a courtroom: what does an issuer owe a holder whose tokens it freezes without charge or explanation? A ruling either way will shape how businesses think about holding treasury cash in USDT.
Until then, the practical takeaway is simple. Self-custody removes one counterparty, the exchange. With a centrally issued stablecoin, there is always another one left.
Your keys, your address. Their contract, their rules.