Summary
USDC, USDT, and USD1 are all centralized stablecoins, with issuers retaining certain contract management permissions. However, according to this community analysis of the public contract code, there are significant differences in their ability to handle frozen assets afterward.
In the current versions, USDC mainly uses a blacklist to restrict addresses from sending and receiving assets and has management capabilities such as pausing; USDT, in addition to freezing, also has a mechanism to destroy balances on the blacklist; while the article points out that USD1’s StablecoinV2 further includes functions such as drain and reallocate, which, under the appropriate permission conditions, can handle USD1 frozen in addresses, including transferring or redistributing it.
Therefore, when discussing the “degree of decentralization” of stablecoins, it is not enough to only look at whether the assets are held in self-custody wallets. It is also necessary to pay attention to: how much asset control authority the issuer retains at the smart contract layer.
It is important to emphasize that administrator permissions themselves do not equal malicious “backdoors.” If these functions are publicly present on-chain in the contract, a more accurate discussion should focus on the issuer’s centralized control and the boundaries of contract permissions, rather than directly assuming the existence of hidden malicious code.
KTX Crypto Portfolio Observations
For the KTX Crypto portfolio, this community viewpoint falls under the category of **“Stablecoin Issuer Permissions and Asset Control Risks,”** focusing not on simply judging which stablecoin is safer but on understanding that self-custody does not mean complete detachment from issuer control:
- USDC: Mainly freezing permissions. The current contract can blacklist addresses, but the article notes that the current version does not have an administrator function to directly transfer frozen balances.
- USDT: Can destroy in addition to freezing. The blacklist mechanism restricts address usage of USDT and includes the ability to further dispose of balances on the blacklist.
- USD1: Asset disposal permissions deserve more attention. According to the original analysis of StablecoinV2, beyond freezing, there are mechanisms such as drain and reallocate that can further transfer or redistribute related balances.
- Private key control ≠ absolute stablecoin control: Even if assets are stored in cold wallets or multisig wallets, the contract-level administrator permissions of centralized stablecoins can still affect the tokens.
- Portfolio execution: Besides issuer reserves, liquidity, and depegging risks, blacklist mechanisms, upgrade permissions, administrator roles, and frozen asset disposal mechanisms should also be included in stablecoin risk assessments.
Original Text Included
Comparison of the Centralization Levels of USD1, USDT, and USDC Stablecoins
Recent discussions about USD1 contract permissions have brought a commonly overlooked question back into focus:
When stablecoins are held in users’ own on-chain wallets, how much asset control do users actually have?
USDC, USDT, and USD1 are all centralized stablecoins, and it is not unusual for issuers to have a certain level of management permissions. What is truly worth comparing is what each can do after assets are frozen.
USDC: Mainly “freezing”
According to the original analysis of the current USDC contract, Circle can add specific addresses to a blacklist.
Once an address is blacklisted, its ability to transfer USDC is restricted, and the contract also contains administrative mechanisms such as pausing.
However, the original article points out that in the current contract version they examined, there is no function like USDT’s destroyBlackFunds that can directly destroy the entire balance of a blacklisted address; nor is there a function that directly transfers that address’s USDC to the administrator’s address.
But there is another important variable:
USDC is an upgradable contract.
Therefore, when discussing these permissions, it is necessary to distinguish between “functions available in the current contract” and “theoretical changes possible after future upgrades.”
USDT: Can further dispose after freezing
In contrast, the original article believes USDT’s permissions go further.
Besides restricting specific addresses through the blacklist mechanism, the USDT contract also has mechanisms like destroyBlackFunds that can further dispose of balances held by blacklisted addresses.
This means that even if USDT is stored in a cold wallet controlled by the user’s own private keys, the token itself remains subject to the issuer’s contract rules.
Here, a concept that is easy to confuse is highlighted:
Controlling a wallet’s private key does not equal controlling the stablecoin contract.
Users have signature authority over the wallet address, while the stablecoin issuer controls the token contract itself. These are not permissions on the same level.
USD1: Involves transfer and reallocation after freezing
The situation with USD1 deserves even more attention.
According to the original analysis of the current StablecoinV2 contract, in addition to common administrator capabilities such as freezing, unfreezing, pausing, minting, and burning, there are also functions like drain and reallocate.
The original article believes these functions mean that, under the appropriate contract permission conditions, administrators can not only freeze specific addresses but also further transfer or reallocate the frozen USD1.
Summarizing this permission structure, the differences among the three can be understood as:
USDC: Freezing
USDT: Freezing + Destroying
USD1: Freezing + Transfer/Reallocation
This is the most noteworthy part of the discussion around USD1.
Self-custody does not mean complete detachment from issuer control
Many users think:
“If the coins are in a cold wallet and only I have the private keys, it means no third party can touch these assets.”
For native on-chain assets like BTC, this understanding is relatively close to their design logic.
But for stablecoins issued in a centralized manner, the situation is not exactly the same.
Wallet private keys control address signing authority, while stablecoin contract administrators control token rules.
Therefore, even if users do not leak their private keys, as long as the stablecoin contract itself grants the issuer the ability to freeze, destroy, or reallocate, the issuer may still affect the token status according to those permissions.
“Administrator permissions” and “backdoors” need to be distinguished
Regarding whether USD1 has a so-called “backdoor,” a more careful distinction of concepts is needed.
If “backdoor” refers to malicious code secretly embedded by developers that cannot be detected externally, then based solely on the information listed in the original article, there is insufficient evidence to prove the existence of such a hidden backdoor.
If the relevant functions are indeed publicly present in the actual on-chain running contracts, then a more accurate statement would be:
USD1 has strong centralized administrator permissions.
The real issue worth focusing on is not labeling it as having a “backdoor,” but whether investors fully understand these permissions and under what circumstances the issuer can use them.
Another issue worth verifying: whether the source code matches the on-chain implementation
The original article also raises a more critical observation:
The investigation suggests that the USD1 source code displayed on the World Liberty official GitHub may differ from the currently deployed StablecoinV2 on-chain.
According to the author, the publicly available GitHub version does not include drain and reallocate, while the on-chain StablecoinV2 upgraded in April 2026 already contains these capabilities.
If this is further verified by the on-chain contract, proxy implementation address, and upgrade records, then the problem is not only about “how large the permissions are,” but also involves:
Should investors rely on the official code repository or the actual implementation contract running on-chain?
The answer should clearly lean toward the latter.
For upgradable stablecoins, risk research cannot only look at GitHub but must also monitor the current Proxy’s referenced implementation contract, administrator roles, upgrade history, and actual deployed code.
Therefore, stablecoin risk analysis is evolving from a simple question of “will it depeg” to:
Are reserves sufficient, who holds upgrade rights, who can freeze assets, and what can the issuer do after assets are frozen.
Risk Disclaimer:
This article is a collection and summary of community viewpoints. Specific contract permissions involving USD1, USDT, and USDC should be based on the currently deployed on-chain versions and official disclosures; contracts may be upgraded, and related permissions may change. This article does not constitute any investment advice. DYOR (Do Your Own Research).
Original Author: Phyrex
X Account: @PhyrexNi
Original Link: https://x.com/PhyrexNi/status/2090756310946164877
Risk Disclaimer: This article is a collection of community viewpoints and does not constitute any investment advice. DYOR.