CENTRE Consortium, the creator of the USDC stablecoin, has blacklisted an Ethereum address with around 100,000 USDC ($100,000). This serves as a stark reminder that centralized stablecoins are exposed to legal risks and underpins the importance of decentralized stablecoins like DAI and sUSD.

CENTRE’s blacklisting of an address holding a sizeable sum of USDC is the first time the centralized stablecoin provider has banned a particular address from using its stablecoin.

When CENTRE executes its blacklist function for a particular address, the USDC in the address is locked and cannot be used for on-chain transactions. It may not be recoverable even through the company’s redemption process.

The on-chain trail reveals that the blacklisted address received 277,000 USDC from another address that regularly deals in large sums of stablecoins using centralized exchanges like Bitfinex and Binance.

The $277,000 of USDC sent to the address can be traced back to one of Binance‘s many cold wallets. This cold wallet sent $460,000 in USDC to the address that funded the blacklisted entity.

It cannot be ascertained whether the same entity owns the funding address and the blacklisted address. Still, the logic of blacklisting one and leaving the other address seems to evidence that multiple parties are involved.

In a comment to media outlet The Block, Circle, which makes up one half of CENTRE, said:

“Centre can confirm it blacklisted an address in response to a request from law enforcement. While we cannot comment on the specifics of law enforcement requests, Centre complies with binding court orders that have appropriate jurisdiction over the organization.”

USDC is a billion-dollar stablecoin mostly used within Ethereum’s DeFi ecosystem. It’s a favorite amongst DeFi users because it’s not as unstable as DAI, nor is it as shady as USDT.

The stablecoin is collateral on Compound, Aave, and, most importantly, MakerDAO. Currently, there is 26.85 million USDC locked in MakerDAO, representing 2.9% of the stablecoin’s supply and 4.3% of MakerDAO’s total collateral.

There are no immediate concerns for DeFi as CENTRE set a precedent by blacklisting only one address rather than a string of associated addresses. However, this still highlights the need for a decentralized stablecoin to take the reins and become the asset of choice for DeFi.

sUSD and DAI are locked in a battle to achieve this status. Neither are close to challenging the centralized incumbents, however, because of their volatile pegs and low liquidity.

Until the time a decentralized stablecoin can recreate the effective peg that centralized variants enjoy, DeFi users will continue to use USDC and USDT as these stablecoins will accrue liquidity.

A single blacklist is not significant, but it is a reminder that centralized stablecoins face a two-sided risk: smart contract risk and legal risks from operating as a registered company.

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