Most big stable coins have centralized control over issuing, removing, and freezing their tokens. It's built into their contracts.

I thought Tether is an ERC20 token on the Ethereum blockchain?

How would Tether "freeze" one of the tokens, so it cannot be moved anymore?

Good think about crypto is that you can just look at the code!

Here is the Tether USDT contract https://etherscan.io/token/0xdac17f958d2ee523a2206206994597c....

There is a map `isBlackListed: address => bool` that stores blacklisted accounts. Then the transfer function starts with

  function transfer(address _to, uint _value) public whenNotPaused {
      require(!isBlackListed[msg.sender]);
      ...
  }

So a blacklisted account cannot send USDT.

Not all ERC20 tokens are created equal, it simply means that the token implemented the ERC20 interface, it has a transfer() function as per the ERC20 spec, but that transfer() can check if an address is blacklisted. For example, take the WETH

(I am providing a different answer, not building on the prior one.) Tether is a centralized financial service which mints USDT in exchange for USD and lets you redeem USDT later for USD (using fiat bank wire transfers in and out, taking a small but non-negligible cut in both directions, and so $0.9987 or somewhere around there is the true power bound target of the currency, not $1.00). Honestly, I am not sure how their service is legal in the US under merely FinCEN regulations (the ones that prevent you from selling large prepaid gift cards and redeeming them for cash), OFAC aside...

It's not legal which is why they are based outside the US.