Polkadot's "issuer-free" stablecoin launches on Tether's dollars

Polkadot has launched dotUSD, a stablecoin that it says has no issuing company, on Thursday, October 8.

However, the token that went live is minted one-for-one against Tether’s USDT, which is the same kind of centrally controlled dollar coin that Polkadot’s own pitch warns against.

In the same post where it announced the launch on X, Polkadot stated that a handful of firms issue and control most of the world’s stablecoins. It put that market at more than $250 billion and stated that those firms decide who gets to hold their tokens, like banks. 

It said that dotUSD rests on a different premise, with no issuing company. For now, that premise does not describe the live product.

A wrapped Tether in everything but name

The rollout is phased, as seen in the governance proposal behind the launch, referendum 1944.

The first phase is already built, and on-chain per the proposal, and it lets users mint dotUSD at a rate of one dollar of USDT per dollar of dotUSD, up to a supply cap. 

Tether’s token is behind the reserve at this stage. 

To seed trading, the proposal draws on Polkadot’s treasury to put in place a DOT and dotUSD liquidity pool on Polkadot’s Asset Hub. $2.5 million in USDT is expected to be set aside to mint dotUSD and another $2.5 million in DOT for the pool, bringing it to a $5 million start. However, a later draft cut each leg to $1.5 million, for $3 million.

The Polkadot Community Foundation, which put the proposal forward, states it acts only in an administrative capacity and will not issue, operate, or take custody of dotUSD, DOT, or USDT.

How does phase one undercut Polkadot’s pitch?

The latest launch is not the exact product that was discussed in the proposal document. This is because it argued against building on the same asset that is now backing it.

The proposal pointed out that centralized stablecoins such as USDC and USDT have kill switches. They also answer to governments and can freeze user accounts. They can also blacklist addresses with no recourse for the holders affected. 

However, the same dependency that it warned against is now live on dotUSD. A dollar of dotUSD minted in phase one is a claim on a dollar of USDT sitting in reserve.

This means that should Tether freeze the wallet holding that reserve, the backing behind that dotUSD is frozen with it. 

Tether freezes are not hypothetical

The concerns that the proposal flagged concerning centralized stablecoin issuers are not false alarms. 

Tether does carry out freezing exercises routinely. It reportedly froze more than $514 million in USDT across 370 Ethereum and Tron addresses in a single 30-day window, on top of $1.26 billion blacklisted during 2025. 

Once a freeze is imposed, it is rarely lifted. However, those powers are now being tested in court. 

On October 6, payments firm Conduit sued Tether in a New York federal court over a $2.76 million USDT freeze. Conduit says the action has caused the locking of its main operating account for more than a year, with no explanation, and after Brazilian police confirmed they never flagged the wallet. 

It is the second such suit in the same court within weeks, following a case from two Thai businessmen over $42.4 million frozen across ten Ethereum addresses, which they say Tether blacklisted on an informal Homeland Security request months before any warrant. 

Tether has called that suit baseless and points to its work with more than 340 law enforcement agencies.

The decentralized version is still a promise

So far, the protocol has not delivered what it pitched in the proposal, and with that, all eyes are now on phase two. 

At that stage, it is expected that the system will have DOT-collateralized vaults, an oracle, a stability pool, liquidations, and a redemption mechanism. 

However, there is no defined date for the release of phase two. Plans for a DOT-backed Polkadot stablecoin have circulated for over a year, since co-founder Gavin Wood flagged the work at the Web3 Summit in July 2025.

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