Analyst Defends Circle’s No-Freeze Stance on $280M Drift Hack Funds

The bad press facing stablecoin issuer Circle, following the $280 million exploit on the Solana trading protocol Drift, has gone up a notch after a California-based legal group filed a class action lawsuit against it, alleging it stood by while North Korea-linked hackers moved millions in stolen USDC through the firm’s own bridge, making it liable for investor losses from the attack.

However, an analyst just made a case that Circle’s hands-off approach wasn’t negligence but rather the only way it could preserve the foundational principles that make USDC viable for institutional use.

Why Freezing the Funds Would Have Been Worse

Responding to a wave of anger aimed at Circle and its CEO, Jeremy Allaire, Lorenzo Valente, the director of research at ARK Invest, claimed that had the company frozen the stolen USDC without a legal order, then the stablecoin would have become “whatever Circle feels like that day.”

According to him, there are several reasons why Circle’s inaction was the more sound path, with the first being that the incident was a “market/oracle exploit” and not a straightforward theft. This means it occupied a gray zone that includes aggressive but legal trading strategies, and having Circle decide which trades cross the line, in his opinion, can create a system with “no lawyers, no hearing, no appeal, just Circle vibes.”

Valente also warned of contagion effects, where, if stablecoin issuers freeze funds based on their own judgment, then that permission structure would spread across the entire stack and would see bridges reversing transfers, DEXs blacklisting routers, wallets blocking transactions, and oracles tweaking price feeds at will.

“The whole point of permissionless onchain finance is that none of these actors get to play judge,” he wrote.

Thirdly, the analyst explained that due process functions as a product feature rather than a limitation. “The reason institutions build on USDC is because Circle can’t wake up and zero out your balance,” he said, suggesting that a stablecoin that can fold to social media pressure can then be easily swayed into action by any sufficiently loud voice.

There is also the legal risk that the analyst feels nobody seems to want to discuss. Hackers move money fast. Within minutes, innocent liquidity providers and market makers end up holding tokens that passed through a mixer or a bridge. And if they freeze too aggressively, platforms like Circle may end up doing what could constitute theft from people who had nothing to do with the original crime. In this way, they risk facing lawsuits from downstream counterparties.

Finally, Valente decried the lack of consistency, calling out popular on-chain investigator ZachXBT, who he said had Circle on multiple occasions for freezing wallets without explanation, including more than 16 business-linked addresses just days before the Drift incident. Now, the same critic Circle to freeze faster.