Circle Won’t Freeze Stolen USDC Without Court Order

In the face of growing criticism, Circle CEO Jeremy Allaire defended the USDC-issuer’s policy of refusing to freeze its stablecoins immediately after hacks and exploits.

While leading stablecoin issuer Tether freezes its USDT stablecoins if it can be done in time — often within hours of a reported hack — to prevent stolen funds from being moved, Circle does not. It has been criticized for refusing to act while stolen funds are still in a position to be seized and restored to their rightful owners.

Speaking during a press conference in Seoul, South Korea, on Monday, Allaire explained that as a regulated financial product, it cannot freeze tokens on a whim.

“Circle has a very, very clear performance obligation under the law,” Allaire said. “Circle follows the rule of law, and we are able to undertake actions such as freezing a wallet at the direction of law enforcement or the courts.”

The problem is that neither the courts nor law enforcement can act quickly enough to make such a request.

Allaire said that Circle has worked with the legislators writing the crypto-regulating Clarity Act to create a “safe harbor” allowing stablecoin issuers to act immediately, but that it cannot act alone.

Harsh criticism

Circle has faced harsh criticism for its stance, with prominent crypto community members like well-known blockchain investigator ZacXBT blaming the company for letting “nine figures” worth of stolen USDC be moved during hacks.

ZachXBT cited 15 cases since 2022 in which Circle allowed some $420 million in illicit funds to be moved without interference. The issue came up again most recently during the April 1 Drift Protocol hack, in which North Korean hackers moved $232 million in stolen USDC over a six-hour period without action by Circle.

He noted that Circle’s terms of use note that it “reserves the right to ‘block’ certain USDC funds… that it determines, in its sole discretion, may be associated with illegal activity.”

Circle has its supporters. Coin Metrics co-founder and Castle Island Ventures founding partner Nic Carter said in an April 13 X post that “the solution to Circle refusing to freeze funds for anything other than a court order is not to carve out a bunch of exceptions, it’s to create a Chancery court that moves at the speed of the internet.”

But he also noted that Circle’s stance risks making it “the preferred means to monetize through hacks.”