The tension between regulatory compliance and operational agility has reached a boiling point for Circle, the issuer of the USDC stablecoin. In a detailed series of allegations, prominent on-chain investigator ZachXBT has accused the company of a paradoxical approach to asset freezing: failing to stop hundreds of millions of dollars in stolen funds although simultaneously freezing the accounts of legitimate businesses.
At the heart of the USDC 동결 논란 (USDC freezing controversy) is a claim that Circle has ignored or delayed action in at least 15 separate cases since 2022, allowing more than $420 million in illicit funds to move through its ecosystem. According to the investigator, this failure persists even when Circle possessed the technical capability and contractual authority to blacklist the addresses in question.
The controversy highlights a growing debate over whether “regulated” stablecoins are actually more effective at preventing crime than their less-regulated counterparts, or if a strict adherence to legal bureaucracy creates a window of opportunity for hackers and state-sponsored actors.
The Gap Between Ability and Action
ZachXBT’s investigation, titled the “Circle USDC files,” presents a timeline of missed opportunities. One of the most glaring examples cited is the attack on Drift Protocol, where attackers allegedly moved over $232 million in USDC from Solana to Ethereum via Circle’s own Cross-Chain Transfer Protocol (CCTP). The investigator notes that this occurred over a six-hour window during U.S. Business hours, yet no freeze was implemented during the transfer process.
The pattern of delay extends to state-sponsored theft. The investigator points to the Lazarus Group, a North Korean hacking entity, alleging that Circle took 4.5 months longer to freeze identified Lazarus-linked addresses than other issuers like Tether or Paxos. A similar discrepancy appeared in the case of Garantex, a sanctioned Russian exchange. while Tether froze $22 million in a coordinated effort, over $200,000 in USDC remained accessible.
Other notable failures cited in the report include:
- Swapnet: $3 million in USDC remained accessible for two days following a $16 million theft, despite temporary freeze requests from law enforcement and private investigators.
- Cetus Protocol: $61 million was bridged through Circle’s infrastructure, but the funds were only blacklisted a month after they had already been converted to Ether.
- Mango Markets: $57.5 million flowed into Circle deposit addresses without being frozen on-chain, despite the subsequent indictment of the hacker by the SEC.
- Nomad Bridge: Approximately $45 million in USDC remained unfrozen for 30 to 45 minutes after a massive $190 million exploit.
Collateral Damage: Freezing the Innocent
While the failure to stop hackers is a point of contention, the second half of the controversy involves “incompetent” freezing of legitimate assets. In March 2024, Circle froze USDC balances across 16 corporate wallets in connection with a New York civil lawsuit. Still, the investigator argues that these wallets had no actual connection to the litigation.
The affected entities included cryptocurrency exchanges, online casinos, forex brokers, and the DFINITY Foundation’s ckETH Minter smart contract. ZachXBT contends that basic on-chain analysis would have revealed these were active, unrelated business infrastructures rather than illicit accounts.
Following the public outcry and subsequent analysis, Circle has since unfrozen at least five of these wallets, including the DFINITY contract and a wallet belonging to Goated.com. The incident has fueled claims that Circle’s internal vetting process for freezes is flawed, prioritizing broad-brush legal compliance over precise on-chain evidence.
Summary of Alleged USDC Freezing Discrepancies
| Scenario | Action Taken | Outcome/Impact |
|---|---|---|
| Major Hacks (e.g., Drift) | Delayed or No Freeze | Millions in stolen funds escaped |
| Lazarus Group Addresses | Slow Response | 4.5 months slower than competitors |
| Civil Lawsuit Wallets | Immediate Freeze | 16 legitimate businesses disrupted |
| Sanctioned Exchanges | Partial/Delayed Action | Funds remained accessible vs. Tether |
The Compliance Dilemma
Circle has defended its practices by emphasizing the legal risks of acting without official mandates. A company spokesperson stated that assets are frozen only when legally required, such as through sanctions, law enforcement orders, or court mandates. The company argues that preemptive freezing without legal authorization could expose Circle to liability and violate user rights.
From a financial policy perspective, this creates a “compliance trap.” If Circle acts as a vigilante to save user funds, it risks being sued by the account holder for unauthorized seizure. If it waits for a court order, the funds are usually long gone. This friction is a central point of the USDC 동결 논란, as critics argue that the “regulated” nature of USDC is being used as a shield for operational inertia.
Despite the criticism, ZachXBT noted that he continues to personally hold USDC and acknowledges the quality of Circle’s product development. His critique is focused specifically on the alignment of Circle’s compliance priorities with the actual needs of the crypto ecosystem’s security.
Disclaimer: This article is for informational purposes only and does not constitute financial or legal advice.
The industry is now watching to see if Circle will refine its internal “discretionary” freeze protocols or if it will maintain its current stance of strict legal adherence. The next critical checkpoint will be the remaining 11 wallets from the New York civil case; whether Circle continues to unfreeze these unrelated accounts will serve as a barometer for how the company responds to on-chain evidence versus legal paperwork.
Do you think stablecoin issuers should have more discretion to freeze funds during active hacks, or is strict legal adherence the only way to protect user rights? Share your thoughts in the comments below.
