Circle has responded to recent criticism over its handling of illicit fund flows. It argues that it cannot freeze assets without legal authorization, following scrutiny tied to the Drift Protocol exploit.
In a blog post published on 10 April, the company said its ability to freeze USDC is “not discretionary,” but instead depends on lawful orders from relevant authorities.
The statement comes days after an on-chain report alleged more than $420 million in compliance lapses linked to delayed or absent freezes.
“Freezing is a legal obligation, not a discretionary tool”
Circle pushed back on the idea that it can act unilaterally to block funds, stating that USDC operates within U.S. and European regulatory frameworks.
According to the company, freezing assets requires a formal legal process. Also, acting outside those constraints could undermine property rights and financial privacy.
The distinction is central to its response: while the technology enables blacklisting, Circle maintains that the decision to act must come from law enforcement or the courts, not the issuer itself.
Drift exploit brought response times into focus
The clarification follows criticism tied to the 1 April exploit of Drift Protocol, during which over $270 million was reportedly drained.
Reports claimed that more than $230 million in USDC was bridged across chains during the incident without being frozen. The event raised questions about how quickly issuers can respond in fast-moving exploit scenarios.
The report also cited past incidents — including Cetus, Mango Markets, and Nomad — where USDC-linked funds were allegedly frozen late or not at all.
Circle’s response does not directly address specific cases. Instead, it reframes the issue as a legal constraint rather than an operational failure.
A gap between technology and law
A key theme in Circle’s statement is what it describes as a mismatch between the speed of blockchain activity and the pace of legal processes.
While tools exist to intervene quickly, the company argues that current regulatory frameworks do not allow for rapid, coordinated action without due process.
This, it says, creates a structural gap that can be exploited by bad actors moving funds across chains in real time.
Policy push gains momentum
Circle explicitly linked the issue to ongoing regulatory efforts in the United States, including the GENIUS Act and the CLARITY Act.
The company called for updated legal frameworks that would enable faster intervention while preserving due process, privacy, and property rights.
The timing is notable. Recent signals from U.S. officials, alongside a White House report challenging restrictions on stablecoin yield, suggest growing alignment within the executive branch on digital asset policy.
Final Summary
- Circle says it cannot freeze USDC without legal orders, pushing back against criticism following the Drift exploit.
- The company is calling for faster legal frameworks, linking enforcement challenges to ongoing U.S. regulatory efforts.
Source: https://ambcrypto.com/circle-defends-usdc-freeze-policy-after-drift-exploit-calls-for-faster-legal-frameworks/
