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\n\t\t\t\t\t\t\t\t\tOne unilateral freeze by Circle could trigger a domino effect across DEXs, bridges, oracles, and even wallets.\t\t\t\t\t\t\t\t<\/p>\n<\/p><\/div>\n
The bad press facing stablecoin issuer Circle, following the $280 million exploit on the Solana trading protocol Drift, has gone up a notch after a California-based legal group filed a class action lawsuit against it, alleging it stood by while North Korea-linked hackers moved millions in stolen USDC through the firm\u2019s own bridge, making it liable for investor losses from the attack.<\/p>\n
However, an analyst just made a case that Circle\u2019s hands-off approach wasn\u2019t negligence but rather the only way it could preserve the foundational principles that make USDC viable for institutional use.<\/p>\n
Responding to a wave of anger aimed at Circle and its CEO, Jeremy Allaire, Lorenzo Valente, the director of research at ARK Invest, claimed<\/a> that had the company frozen the stolen USDC without a legal order, then the stablecoin would have become \u201cwhatever Circle feels like that day.\u201d<\/p>\n According to him, there are several reasons why Circle\u2019s inaction was the more sound path, with the first being that the incident was a \u201cmarket\/oracle exploit\u201d and not a straightforward theft. This means it occupied a gray zone that includes aggressive but legal trading strategies, and having Circle decide which trades cross the line, in his opinion, can create a system with \u201cno lawyers, no hearing, no appeal, just Circle vibes.\u201d<\/p>\n Valente also warned of contagion effects, where, if stablecoin issuers freeze funds based on their own judgment, then that permission structure would spread across the entire stack and would see bridges reversing transfers, DEXs blacklisting routers, wallets blocking transactions, and oracles tweaking price feeds at will.<\/p>\n \u201cThe whole point of permissionless onchain finance is that none of these actors get to play judge,\u201d he wrote.<\/p>\n<\/blockquote>\n Thirdly, the analyst explained that due process functions as a product feature rather than a limitation. \u201cThe reason institutions build on USDC is because Circle can\u2019t wake up and zero out your balance,\u201d he said, suggesting that a stablecoin that can fold to social media pressure can then be easily swayed into action by any sufficiently loud voice.<\/p>\n There is also the legal risk that the analyst feels nobody seems to want to discuss. Hackers move money fast. Within minutes, innocent liquidity providers and market makers end up holding tokens that passed through a mixer or a bridge. And if they freeze too aggressively, platforms like Circle may end up doing what could constitute theft from people who had nothing to do with the original crime. In this way, they risk facing lawsuits from downstream counterparties.<\/p>\n Finally, Valente decried the lack of consistency, calling out popular on-chain investigator ZachXBT, who he said had gone after<\/a> Circle on multiple occasions for freezing wallets without explanation, including more than 16 business-linked addresses just days before the Drift incident. Now, the same critic wants<\/a> Circle to freeze faster.<\/p>\n \u201cYou can\u2019t have it both ways,\u201d wrote the ARK researcher. \u201cEither Circle uses broad discretion (and you don\u2019t get to complain when they freeze something you like), or they only act under legal order.\u201d<\/p>\n<\/blockquote>\n The lawsuit against Circle was filed<\/a> by Gibbs Mura, with Jacob Robinson, a legal commentator on X, calling<\/a> their allegations \u201cdangerous, precedent-setting.\u201d One claim is that Circle aided and abetted hackers simply by letting them use the Cross-Chain Transfer Protocol. Another is that Circle had an affirmative duty to recognize the harm and freeze assets.<\/p>\n Robinson doubts the suit succeeds, but noted that if it did, the risk could extend to anyone operating a bridge.<\/p>\n While Circle defends its choices in court and on social media, Drift Protocol is not waiting around. The project announced<\/a> a collaboration with Tether totaling nearly $150 million. The plan centers on a relaunch where USDT replaces USDC for settlements.<\/p>\n A $100 million revenue-linked credit facility, ecosystem grants, and loans to market makers will fund a recovery pool for affected users.<\/p>\n However, Circle\u2019s Allaire had already laid out<\/a> the company\u2019s position during an April 13 press conference in Seoul. It only acts when the law requires it, he said. The company does not get to step away from legal obligations to make judgment calls, even when the moral calculus feels obvious.<\/p>\n LIMITED OFFER for CryptoPotato readers at Bybit: Use this link<\/a> to register and open a $500 FREE position on any coin!<\/b><\/p>\n<\/div>\n<\/div>\n\n
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Drift Moves on With Tether<\/h2>\n
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