Sun Yuchen points out unauthorized fund transfer permissions in USD1 contract, cold wallets or multi-signatures cannot prevent it
Sun Yuchen stated that independent researchers have released a technical analysis of the USD1 smart contract. According to their findings, the highest authority of USD1 allows the issuer to transfer USD1 from user accounts to the issuer or other wallets without the consent of the holders. Cold wallets or multi-signatures cannot prevent this, as the permissions operate at the token contract level.
The second finding is even more concerning: the USD1 source code published on World Liberty's official GitHub does not match the actual deployed code on-chain. The published version lacks "drain" or "reallocate" functions, but the deployed version after the upgrade in April 2026 includes both.
Sun Yuchen pointed out that showing a clean codebase to auditors and users while running different code on-chain is a typical rug pull tactic, ranking first on the fraud detection list of blockchain security companies. He linked this to the previous backdoor addition in the WLFI token and emphasized that the company is applying for a national trust bank license in the U.S.
He urged holders to verify the on-chain contract themselves, stating that this is the purpose of blockchain. The related accusations are part of his lawsuit against World Liberty.
From a market mechanism perspective, the exposure of mismatched contract permissions and code increases the trust risk of USD1 and WLFI, potentially leading to capital outflows from related assets; the incident is driven by technical analysis, benefiting users and security researchers who focus on transparency, while putting pressure on the project party.
Source: Public information
ABAB AI Insight
As an early major investor in World Liberty and the current plaintiff in the lawsuit, Sun Yuchen has publicized the drain and reallocate permissions of the USD1 contract and the discrepancies between the GitHub and on-chain code by forwarding the independent technical analysis, directly continuing his legal claims regarding backdoor functions.
In terms of capital pathways, the project added sensitive permissions through an upgradable proxy contract after deployment, shifting resources from publicly promised transparent code to actual control capabilities, motivated by retaining ultimate disposal rights over frozen funds, with specific actions including the introduction of drain/reallocate in the April upgrade without synchronously publishing the source code.
Similar cases can be seen in other stablecoin or token projects that have triggered trust crises due to excessive administrator permissions or code mismatches; the current stablecoin sector is in a phase of applying for banking licenses while undergoing centralized control reviews.
Essentially, this represents a technical substitution: user self-custody is replaced by contract-level administrator permissions, with the mechanism designed to allow forced transfers after freezing, retaining ultimate control in the hands of the issuer, thereby undermining the practical significance of decentralized custody.
ABAB News · Cognitive Laws
The day a set of code is published and another set is deployed, trust has already been overdrawn.
Permissions that cold wallets cannot block are the true contract-level controls.
The backdoor in stablecoins will ultimately determine whether they can become true stable assets.