Circle Accused of Failing to Freeze Illicit USDC Flows

Onchain investigator ZachXBT has made serious allegations against Circle, the issuer of USDC, claiming that the company failed to freeze over $420 million in illicit stablecoin flows across 15 documented cases since 2022.

The allegations were made public through a detailed thread published on social media platform X, which highlights specific hacks and frauds where Circle had the technical ability and contractual authority to freeze or blacklist USDC wallets but did not act promptly.

One notable example cited by ZachXBT was the Drift Protocol exploit in April 2026, attributed to North Korea's Lazarus Group. In this case, attackers bridged over $232 million in USDC from Solana to Ethereum using Circle's own Cross-Chain Transfer Protocol within six hours during U.S. business hours. Despite having the technical ability to freeze the funds, Circle did not take action.

Circle's official position is that they only freeze assets when legally required, including in response to sanctions designations, law enforcement orders, or court mandates. However, this stance has been criticized by ZachXBT, who argues that the company's compliance priorities may not align with the losses suffered by the broader crypto ecosystem as a result of delayed or withheld freezes.

Furthermore, Circle has also faced criticism for freezing 16 legitimate business wallets tied to a U.S. civil case in March 2026. These wallets belonged to various businesses, including exchanges, online casinos, and payment processors. At least five of these wallets were later unfrozen, but the incident has sparked questions about Circle's ability to distinguish between legitimate and illicit activity.