Ripple’s Schwartz Backs $42.4M Tether Freeze as XRP Highlights Stablecoin Divide

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Sep 2, 2026
2min read
byEthan Mercer
forCoinpaper

Two Thai businessmen sued Tether in the Southern District of New York on Aug. 31, 2025 after the issuer blacklisted 10 Ethereum addresses holding 42,417,785.62 USDT (≈$42.4M) on Oct. 30, 2025, months before a formal seizure warrant was issued on Feb. 19, 2026. Former Ripple CTO David Schwartz defended Tether’s pre-warrant freeze as a practical compliance step and Coinpaper notes Ripple’s RLUSD likewise reserves broad issuer-controlled freeze and burn/mint powers, while native XRP remains immutable. The case, coming after Tether helped seize nearly $61M and disclosed a separate $344M freeze, could define legal limits on stablecoin issuer control and has direct implications for crypto regulation, stablecoin adoption, DeFi/CEX custody models and market trust.

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Former Ripple CTO David Schwartz has defended Tether’s decision to freeze $42.4 million in USDT before receiving a formal court warrant, putting a broader question about centralized stablecoin control into focus.

Two Thai businessmen filed suit against Tether in the Southern District of New York on Aug. 31, alleging that the company blacklisted 10 Ethereum addresses containing 42,417,785.62 USDT on Oct. 30, 2025 after an informal Homeland Security Investigations request. A formal seizure warrant was issued months later, on Feb. 19, 2026. The allegations have not yet been adjudicated.

Schwartz argued that Tether had little practical choice but to secure the assets while competing ownership claims were unresolved. His position is especially interesting because Ripple itself operates a competing regulated stablecoin

The Same Question Applies to RLUSD

Ripple’s own RLUSD terms explicitly reserve broad powers to freeze digital addresses.

The company states that it may blacklist wallets holding RLUSD when required by law or under Ripple’s internal compliance policies, including in response to law-enforcement requests. Its terms also allow RLUSD to be burned in one wallet and, where appropriate, minted elsewhere.

That makes Schwartz’s defense of Tether less surprising than it first appears.

Both USDT and RLUSD are issuer-backed stablecoins. Their ability to remain compliant with sanctions, fraud investigations and court orders partly depends on the issuer retaining administrative control.

Coinpaper has previously examined RLUSD’s [security-first design] security-first design and Schwartz’s earlier explanation of XRPL’s [clawback feature] clawback feature.

The distinction becomes much sharper with XRP itself.

XRP is the XRP Ledger’s native asset rather than an issued stablecoin. XRPL documentation makes clear that freeze and clawback functionality applies to issued tokens, not XRP.

Schwartz has previously emphasized the same point: Ripple cannot blacklist an XRP holder or reverse a valid XRP transaction once the network has finalized it. Coinpaper’s [XRP immutability] XRP immutability coverage explains that distinction.

That does not automatically make one model better. Stablecoins need mechanisms for compliance, redemption and legal enforcement that a decentralized native asset does not.

But it does explain why RLUSD should never be treated as interchangeable with XRP.

$42.4M Case Could Test Stablecoin Issuer Powers

The lawsuit also arrives as Tether’s cooperation with authorities expands.

Tether said in February that it helped U.S. authorities seize nearly $61 million in USDT linked to a pig-butchering fraud investigation, while in April it disclosed another $344 million freeze coordinated with U.S. authorities.

The new case therefore matters beyond Tether. A court ruling could help define how far stablecoin issuers may go when law enforcement requests immediate action before formal judicial process arrives.

For XRP investors, the more interesting consequence is conceptual: Schwartz’s defense of Tether highlights exactly why XRP and Ripple’s RLUSD serve fundamentally different roles, despite operating inside the same broader digital-asset economy.

Source: cryptorank.io