Analyst defends Circle’s no-freeze stance on $280 million drift hack fund

A unilateral freeze by Circle could cause a domino effect across DEXs, bridges, oracles, and even wallets.

The negative publicity faced by stablecoin issuer Circle has further increased following the $280 million abuse scandal on the Solana trading protocol Drift. A California-based law group has filed a class action lawsuit against the company, alleging it stood by while North Korea-linked hackers moved millions of dollars in stolen USDC through its bridges and holds it responsible for investor losses from the attack.

However, one analyst argued that Circle’s hands-off approach was not negligent, but rather the only way it could maintain the fundamental principles that make USDC a viable institutional investor.

Why is it a bad idea to freeze funds?

In response to the wave of anger directed at Circle and its CEO Jeremy Allaire, ARK Invest research director Lorenzo Valente claimed that if the company had frozen the stolen USDC without a legal order, the stablecoin would have become “no matter what Circle was in the mood for that day.”

According to him, there are several reasons why Circle’s inaction was the healthier path, the first being that the incident was “market/oracle abuse” rather than simple theft. This meant the company occupied a gray area that included aggressive but legal trading strategies, he said, and by letting the circles decide on trades that crossed the line, it could create a system of “no lawyers, no hearings, no appeals, just the atmosphere of the circles.”

Valente also warned of the contagion effect that if a stablecoin issuer freezes funds based on its own discretion, its permission structure will spread throughout the stack, with bridges reversing transfers, DEXs blacklisting routers, wallets blocking transactions, and oracles adjusting price feeds at will.

“The whole point of permissionless on-chain finance is that none of these parties can play judge,” he wrote.

Third, the analyst explained that due process acts as a product feature rather than a restriction. “The reason financial institutions base themselves on USDC is because the circles can’t wake up and zero out their balances,” he said, suggesting that stablecoins that may succumb to social media pressure could easily be moved into action by a sufficiently loud voice.

There are also legal risks that analysts feel no one wants to discuss. Hackers move money quickly. Within minutes, innocent liquidity providers and market makers will own the tokens that have passed through the mixer or bridge. And by freezing too aggressively, platforms like Circle can engage in activities that may amount to theft from people who have nothing to do with the actual crime. In this way, they risk facing lawsuits from downstream trading partners.

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Finally, Valente blamed the lack of consistency and singled out popular on-chain investigator Zack XBT, who he said had gone after Circle multiple times for freezing wallets containing more than 16 business-related addresses without explanation in the days before the Drift incident. Now, the same critic wants Circle to freeze faster.

“You can’t have it both ways,” the ARK researchers wrote. “Circles either exercise broad discretion (they can’t complain if they freeze what they like) or act solely on the basis of a legal order.”

The lawsuit against Circle was brought by Gibbs Mulla, and X legal commentator Jacob Robinson called their claims “dangerous and precedent-setting.” One of the allegations is that Circle aided and abetted the hackers simply by having them use cross-chain transfer protocols. The other is that Circle had an affirmative duty to recognize damages and freeze assets.

Robinson doubts the lawsuit will be successful, but noted that if it is, the risks could extend to those operating the bridge.

Drift progresses with tether

While Circle has defended its choices in court and on social media, Drift Protocol isn’t sitting idly by. The project announced a partnership with Tether worth approximately $150 million. The plan focuses on restarting USDT to replace USDC for payments.

A $100 million revenue-linked credit facility, ecosystem grants, and market maker loans will fund a recovery pool of affected users.

However, Circle’s Allaire had already made the company’s position clear at a press conference on April 13 in Seoul. It only works if the law requires it, he said. Even when the moral calculation seems clear, the company cannot escape its legal obligation to make decisions.