What happened between Circle and the Drift Protocol hack?

Circle is facing backlash after refusing to freeze USDC linked to a $280 million exploit on Drift Protocol. Hackers reportedly moved stolen funds through Circle’s infrastructure. This has triggered legal action and debate over Circle’s responsibilities.

Why didn’t Circle freeze the stolen USDC funds?

Circle chose not to freeze the funds because it only acts under legal orders. The company argues that unilateral action could undermine trust in its stablecoin. This reflects a strict compliance-based approach rather than discretionary intervention.

What is the lawsuit against Circle about?

A class action lawsuit filed by Gibbs Mura claims Circle failed to act while stolen USDC was moved. The suit argues Circle may be liable for enabling the flow of illicit funds. If successful, it could set a major legal precedent for crypto firms.

What did ARK Invest analyst Lorenzo Valente say about Circle’s decision?

Lorenzo Valente defended Circle, saying its refusal to freeze funds protects the integrity of USDC. He argued that allowing discretionary freezes would create arbitrary control over user balances. This could damage institutional trust in stablecoins.

Why could freezing funds be risky for the crypto ecosystem?

Valente warned that unilateral freezes could trigger a “domino effect” across DeFi. This might include bridges reversing transactions, exchanges blacklisting users, and wallets blocking activity. Such actions could undermine the core principle of permissionless finance.

How does this impact trust in USDC as a stablecoin?

Circle’s stance may strengthen trust among institutions that value predictable, rule-based systems. However, it may also raise concerns among users expecting rapid responses to hacks. The impact depends on how different stakeholders view control versus neutrality.

What is Drift Protocol doing after the hack?

Drift Protocol is moving away from USDC and partnering with Tether. It plans to use USDT for settlements and has secured around $150 million in funding for recovery efforts. This signals a shift in stablecoin preference after the incident.

What are the broader implications for crypto regulation?

If the lawsuit succeeds, it could expand legal liability for infrastructure providers like stablecoin issuers and bridges. This may lead to stricter regulations and compliance requirements. It could reshape how decentralised systems operate.

Circle faces backlash over Drift hack freeze stance

Written by BloombergPublished Apr. 18 2026Last Updated Apr. 18 2026

Circle is under scrutiny after declining to freeze funds linked to a $280 million exploit on Drift Protocol, prompting legal and industry debate.

A class action lawsuit filed by Gibbs Mura alleges Circle failed to act as hackers moved stolen USDC through its infrastructure, potentially exposing the firm to liability.

“The reason institutions build on USDC is because Circle can’t wake up and zero out your balance,”

Said Lorenzo Valente, defending the company’s decision.

Valente argued that freezing funds without a legal order could undermine trust in stablecoins by introducing arbitrary control over user balances and transactions.

He warned such actions could trigger systemic risks across decentralised finance, including bridges reversing transfers, exchanges blacklisting users and wallets blocking activity.

Legal experts remain divided, with some suggesting the lawsuit could set a precedent for liability across crypto infrastructure providers if successful.

Meanwhile, Drift Protocol is pivoting to Tether, announcing a recovery plan that includes replacing USDC with USDT and deploying $150 million in funding support.