I means that they can block addresses and transactions at contract level for USDT and USDC, it's been done a few times already. Exchanges have already blocked and frozen BTC transactions in the past because those particular sats were involved with 'criminal' activities in the past. If they can pin point these coins and transactions, then these coins are not fungible. I don't know how much more clear I can explain it.
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I've got it now. I was thinking on the technical side of that but now all good. Thank you