Circle is defending its handling of USDC tied to the $280 million Drift exploit, arguing that it faced legal limits on freezing those funds.
On March 29, Solana‑based derivatives exchange Drift lost about $285 million in a smart contract exploit that also affected large USDC balances. As stolen funds moved through more than 100 transactions in roughly six hours, some traders and security researchers urged Circle to freeze the USDC.
Circle did not issue a broad freeze, which triggered sharp criticism after the money continued to move across wallets and protocols. On‑chain investigator ZachXBT later argued that Circle has been slow or inconsistent in at least 15 cases involving more than $420 million in allegedly illicit USDC since 2022.
The controversy grew when critics compared that restraint to an earlier incident in which Circle froze 16 operational business wallets in a sealed U.S. civil matter. One of those wallets belonged to gaming platform Goated.com, which Circle later unfroze, raising questions about its internal review process.
Circle Explains Legal Boundaries on Freezes
In a response to media questions, Circle said it could not freeze Drift‑linked USDC without a proper legal process or clear evidence that met its access‑denial criteria. The company maintains that it mainly uses freeze powers in three situations: law enforcement or court orders, major security incidents, and sanctions compliance.
Circle’s Access Denial Policy frames blocking as “exceptional” and links it to network security or legally binding requests, especially from French and American authorities. In contrast, the company has the authority to limit accounts, redemptions, or transfers when required by law or a court order, thanks to its more expansive USDC terms and Circle Mint user agreement.
Company representatives contend that if Circle blacklists wallets too quickly based solely on public claims, it risks interfering with ongoing investigations or freezing assets that courts might later contest. They also cite earlier instances of complying with explicit court orders, such as a New York order extending a $63 million USDC freeze related to the 2023 Multichain attack.
Critics say the Drift exploit highlights a gap between Circle’s technical ability to halt stolen USDC and its willingness to act without formal legal triggers.
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