CENTRE blacklists an address holding USDC for the first time

On June 16, an Ethereum address holding 100,000 USDC stablecoin was been blacklisted. The event became news on July 8, after which Centre subsequently confirmed it blacklisted an address in response to a request from law enforement.

The USDC smart contract maintains a global blacklist, which according to Circle was implemented to comply with legal requirements such as a court order or global sanctions restriction. Reserves associated with USDC balances held on blacklisted addresses may be wholly and permanently unrecoverable. Blacklisted address are not able to execute transactions through the USDC smart contract.

Why it matters:

• Centralized stablecoins like USDC have largely operated on a permissioned pseudonymity model, in which only issuer-facing transactions require KYC/AML. Furthermore, they operate on a blacklist basis, meaning transactions are permitted by default. In practice this has allowed for a relatively unconstrained experience for users, given that issuers don't audit every transaction. It's highly unlikely this regime continues as stablecoins continue to rise.
• The news comes on the same day that FATF released a new report on stablecoins calling for increased regulation for stablecoins and built in AML/CFT protections at the protocol level.