The $2.85B Binance hackers lost shows why the UK needs stablecoin freeze rules

The Binance hack demonstrated the effectiveness of stablecoin freezes, prompting the UK to consider implementing freeze rules as a condition for listing coins. Last weekend, the FBI attributed the $6.3 billion heist to North Korea, but the majority of funds have been frozen due to stablecoin composition. Of the $2.85 billion stolen, 94% was in stablecoins.

While the hack was disastrous, it highlighted that central control could aid in combating crypto crime. Stablecoins can be frozen by their issuers, allowing victims to prevent stolen money from reaching undesirables. However, it raises the question of who decides when freezes should be applied. In the Binance hack's first hour, the hackers sold $325 million of stolen USDT (Tether’s stablecoin) for Ether to circumvent freezes.

Fortunately, Tether and Circle, the stablecoin issuers, acted swiftly to freeze USDT and USDC, preventing most of the funds from being stolen. However, the lack of standardized freeze rules poses challenges. For instance, Circle faces a class action from Drift Protocol investors alleging it didn't freeze stolen USDC promptly. Similarly, Tether is being sued in New York for freezing millions of assets before a seizure warrant.

Stablecoin issuers have significant power, requiring clear guidelines for when freezes are appropriate and how quickly they should respond. The UK can address this gap by imposing conditions on stablecoin issuers listed on UK platforms. The first condition is ensuring the issuer is contactable and prepared to act, similar to Tether and Circle's response in the Binance hack.

The second condition requires a clear timeline for notification to the National Crime Agency once a freeze is initiated, with the freeze expiring if no court order is issued. While these measures are not controversial, they would enable law enforcement to intervene in stolen funds and prevent indefinite asset freezes without legal grounds.

The Binance hack showcased the potential of stablecoins in aiding crypto crime victims, and the UK has an opportunity to establish clear freeze rules before they become a necessity.