{"investigation":{"slug":"circle","entity_name":"Circle","trust_score":62,"severity_base":null,"score_modifier":14,"confidence":0.82,"status":"published","content_type":"investigation","summary":"Circle Internet Group is the issuer of USDC, the second-largest USD-pegged stablecoin by market capitalization. Circle has faced sustained criticism from blockchain investigator ZachXBT and others for its policy of refusing to freeze USDC linked to hacks or scams without a formal court order or law enforcement mandate, which critics allege has allowed over $420 million in illicit funds to flow freely since 2022. The company went public on the NYSE in June 2025 under the ticker CRCL and received conditional OCC approval for a national trust bank charter in December 2025.","sections":[{"content":"Circle Internet Group was founded in 2013 and is headquartered in Boston, Massachusetts. The company is best known as the issuer of USD Coin (USDC), a fiat-collateralized stablecoin pegged to the U.S. dollar. Circle filed an S-1 with the SEC on April 1, 2025, and completed its IPO on June 5, 2025, listing on the New York Stock Exchange under the ticker symbol CRCL at $31 per share. As of the time of filing, USDC had approximately $61 billion in circulating supply. In June 2025, Circle applied to the OCC to form First National Digital Currency Bank, N.A. as a nationally regulated trust institution to oversee management of the USDC reserve. In December 2025, Circle received conditional OCC approval for this national trust bank charter, alongside Ripple, BitGo, Fidelity Digital Assets, and Paxos.","heading":"Background and Operations","sources":[],"severity":"medium"},{"content":"Circle's Stablecoin Access Denial Policy stipulates that USDC can be frozen only to comply with court orders, government sanctions designations (such as OFAC SDN listings), or explicit regulatory mandates. CEO Jeremy Allaire publicly reaffirmed this position on April 13, 2026, stating that Circle does not make independent judgments about who is a 'good actor or bad actor in the midst of an active exploit' and that unilateral preemptive freezes would be 'inappropriate and potentially illegal.' Critics, most notably on-chain investigator ZachXBT, allege this policy has resulted in over $420 million in illicit USDC flowing freely since 2022 across at least 15 documented cases. ZachXBT has publicly labeled Circle, its CEO, and USDC as 'bad actors for the industry,' adding that 'Circle chooses to not engage with the private sector and instead sucks off govt.' Tether, by contrast, has blacklisted 7,268 wallets and frozen approximately $3.3 billion in USDT over the same period, versus Circle's 372 blacklisted addresses and approximately $109 million frozen, representing roughly a 30x gap in enforcement scale relative to market capitalization.","heading":"USDC Freeze Policy and ZachXBT Criticism","sources":[],"severity":"medium"},{"content":"On April 1, 2026, Solana-based perpetuals exchange Drift Protocol was exploited for approximately $285 million in what has been described as the largest DeFi hack of 2026. Attackers, suspected to be North Korea-linked actors, minted a worthless token and used a manipulated liquidity pool to drain real assets from the protocol. Within hours, the attackers converted a large portion of stolen assets to USDC and bridged approximately $232 million from Solana to Ethereum using Circle's native Cross-Chain Transfer Protocol (CCTP) across more than 100 separate transactions over a period of approximately six hours during U.S. business hours. Circle took no freeze action during this window. ZachXBT publicly accused Circle of being 'asleep' during the hack and stated that Circle 'had 6 hours to freeze stolen funds and did nothing.' Circle responded that it lacks legal authority to freeze funds unilaterally without a court order or law enforcement directive. On April 14, 2026, Drift investor Joshua McCollum filed a class-action lawsuit against Circle in the U.S. District Court of Massachusetts on behalf of more than 100 affected users, alleging negligence and aiding and abetting the unlawful conversion of stolen funds. The complaint alleges Circle 'did nothing as the attackers worked to offload their spoils.' Separately, Tether and the Solana Foundation announced a $150 million recovery plan on April 16, 2026 to assist affected users.","heading":"Drift Protocol Hack — April 2026","sources":[],"severity":"medium"},{"content":"ZachXBT publicly criticized Circle for refusing to cooperate in the investigation of a $140 million hack of C&M Software, a provider connected to the Central Bank of Brazil. In this incident, attackers allegedly purchased insider credentials for approximately $3,000 and used them to access banking systems, converting approximately $40 million of stolen fiat funds into cryptocurrencies including Bitcoin, Ethereum, and USDT. ZachXBT coordinated with Binance, Tether, Bitso, Bybit, and Chainalysis to freeze approximately $5 million in stolen crypto. ZachXBT stated publicly that Circle refused to participate in the cooperative freeze effort and, when a social media user noted that most platforms had helped, ZachXBT replied that 'Circle leadership does not actually care about the industry.'","heading":"Brazil C&M Software Hack — Circle Refusal to Cooperate","sources":[],"severity":"medium"},{"content":"On approximately March 23, 2026, Circle froze USDC balances held in 16 unrelated business wallets in connection with a sealed U.S. civil case in New York (case 26-cv-2327). The wallets belonged to crypto exchanges, online casinos, forex brokers, payment processors, and included the ckETH Minter smart contract operated by the DFINITY Foundation, which bridges the Internet Computer Protocol to Ethereum. ZachXBT stated this was 'potentially the single most incompetent freeze he had witnessed in more than five years of investigations,' adding that basic on-chain analysis would have shown the wallets were active operational infrastructure with no apparent connection to the underlying civil matter. At least five of the 16 wallets were subsequently unfrozen, including DFINITY's ckETH Minter contract. The incident drew attention to inconsistencies in Circle's compliance review process: the company froze legitimate business infrastructure in a civil matter just nine days before declining to freeze funds during the Drift Protocol hack.","heading":"Erroneous Freeze of 16 Legitimate Business Wallets — March 2026","sources":[],"severity":"medium"},{"content":"In March 2023, Circle disclosed that approximately $3.3 billion of the cash backing USDC reserves was held at Silicon Valley Bank (SVB), representing approximately 8% of USDC's then-$40 billion reserve base. Following the FDIC's seizure of SVB on March 10, 2023, USDC lost its dollar peg on secondary markets, trading as low as $0.86. Circle suspended primary market redemptions over the weekend, which amplified secondary market selling pressure. Circle publicly stated it would back USDC using external capital if necessary. USDC's peg was restored on March 13, 2023, after the FDIC made an exceptional decision to make all SVB depositors whole, thereby securing Circle's $3.3 billion. The episode raised questions about the concentration and counterparty risk of USDC's reserve management.","heading":"USDC Depeg — Silicon Valley Bank Collapse, March 2023","sources":[],"severity":"medium"},{"content":"An analysis of stablecoin blacklisting data found that both Circle and Tether failed to blacklist at least 55 addresses that were officially designated on the OFAC Specially Designated Nationals (SDN) list, resulting in only 36.4% (32 out of 88) of all OFAC-sanctioned stablecoin addresses being blacklisted on-chain. Circle has blacklisted a total of 372 addresses, with approximately $109 million frozen, compared to Tether's 7,268 addresses and approximately $3.3 billion frozen. Circle's freeze actions tend to cluster around specific periods rather than occurring on a continuous basis, and freeze events are fewer and smaller than Tether's. Unlike Tether, Circle does not have a mechanism to burn frozen USDC and reissue clean replacements to hack victims. Circle did freeze USDC held in Tornado Cash wallets following the U.S. Treasury's 2022 sanctions designation of that mixer.","heading":"OFAC Sanctions Compliance — Gaps Identified","sources":[],"severity":"medium"},{"content":"On May 22, 2025, Cetus Protocol, the largest decentralized exchange on the Sui blockchain, was exploited for approximately $223 million due to a rounding bug in a third-party math library used for liquidity calculations. Approximately $61 million was bridged to Ethereum, with reports indicating Circle blacklisted the relevant USDC wallets approximately one month after the hack, by which time the funds had already been converted to Ether. Sui validators coordinated emergency on-chain action to block attacker-controlled addresses on the Sui network, preserving approximately $162 million that was subsequently recovered. The delayed Circle response in this case is cited by critics as another example of the company's reactive rather than proactive freeze posture.","heading":"Cetus Protocol Hack — May 2025","sources":[],"severity":"medium"},{"content":"Circle Internet Group completed its IPO on the New York Stock Exchange on June 5, 2025 under the ticker CRCL, priced at $31 per share. The company had filed its S-1 with the SEC on April 1, 2025, disclosing USDC circulating supply of approximately $61 billion and reserve interest income of approximately $1.7 billion. In December 2025, Circle received conditional approval from the OCC to form First National Digital Currency Bank, N.A. as a nationally chartered trust bank to manage the USDC reserve. The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins), signed into law in July 2025, provides the first federal statutory framework for payment stablecoins, and Circle has been an active participant in the regulatory process. The OCC published proposed implementing rules for the GENIUS Act in February 2026. Circle's public company status and pending federal bank charter place it under significant regulatory scrutiny; however, critics argue that its court-order-only freeze policy prioritizes regulatory self-protection over industry cooperation.","heading":"Regulatory Status and IPO","sources":[],"severity":"medium"}],"timeline":[{"date":"2013","event":"Circle Internet Group founded in Boston, Massachusetts.","source":"","source_url":"https://www.circle.com","date_original":"2013-01-01"},{"date":"2022-08-08","event":"Circle freezes USDC held in Tornado Cash wallets following U.S. Treasury OFAC sanctions designation.","source":"","source_url":"https://www.theblock.co/post/162172/circle-freezes-usdc-funds-in-tornado-cashs-us-treasury-sanctioned-wallets"},{"date":"2023-03-10","event":"Silicon Valley Bank seized by FDIC. Circle discloses $3.3 billion in USDC reserves held at SVB. USDC depegs, trading as low as $0.86.","source":"","source_url":"https://www.cnbc.com/2023/03/11/stablecoin-usdc-breaks-dollar-peg-after-firm-reveals-it-has-3point3-billion-in-svb-exposure.html"},{"date":"2023-03-13","event":"USDC fully restores $1 peg after FDIC makes all SVB depositors whole, securing Circle's $3.3 billion.","source":"","source_url":"https://www.coindesk.com/business/2023/03/13/usdc-stablecoin-regains-dollar-peg-after-silicon-valley-bank-induced-chaos"},{"date":"2024-01-11","event":"Circle confidentially submits draft S-1 registration statement to the SEC.","source":"","source_url":"https://accessipos.com/circle-stock-ipo/"},{"date":"2025-04","event":"Circle publicly files S-1 with the SEC to list on NYSE under ticker CRCL.","source":"","source_url":"https://www.coindesk.com/business/2025/04/01/stablecoin-giant-circle-files-for-ipo","date_original":"2025-04-01"},{"date":"2025-05-22","event":"Cetus Protocol on Sui blockchain exploited for $223 million. Approximately $61 million bridged to Ethereum via USDC; Circle allegedly blacklists wallets one month later after funds converted to Ether.","source":"","source_url":"https://www.coindesk.com/markets/2025/05/22/sui-networks-cetus-protocol-hit-in-apparent-hack-sending-token-prices-down-90"},{"date":"2025-06-05","event":"Circle IPO completes on NYSE at $31 per share.","source":"","source_url":"https://accessipos.com/circle-stock-ipo/"},{"date":"2025-06-30","event":"Circle submits application to OCC to form First National Digital Currency Bank, N.A.","source":"","source_url":"https://www.circle.com/pressroom/circle-receives-conditional-approval-from-occ-for-national-trust-charter"},{"date":"2025-07","event":"GENIUS Act signed into law, establishing the first U.S. federal statutory framework for payment stablecoins.","source":"","source_url":"https://www.brookings.edu/articles/next-steps-for-genius-payment-stablecoins/","date_original":"2025-07-01"},{"date":"2025-12-12","event":"Circle receives conditional OCC approval for national trust bank charter alongside Ripple, BitGo, Fidelity Digital Assets, and Paxos.","source":"","source_url":"https://www.axios.com/2025/12/12/banks-crypto-occ-charters"},{"date":"2026-01-25","event":"Swapnet exploit results in $16 million stolen, with $3 million USDC accessible for two days while freeze requests submitted by law enforcement and private investigators were allegedly denied by Circle.","source":"","source_url":"https://news.bitcoin.com/usdc-freeze-controversy-zachxbt-says-circle-froze-16-legitimate-wallets-missed-real-hacks/"},{"date":"2026-02-25","event":"OCC publishes proposed GENIUS Act implementing rules covering reserve management, redemption protocols, and operational oversight for stablecoin issuers.","source":"","source_url":"https://www.federalregister.gov/documents/2026/03/02/2026-04089/implementing-the-guiding-and-establishing-national-innovation-for-us-stablecoins-act-for-the"},{"date":"2026-03-23","event":"Circle freezes USDC in 16 legitimate business wallets including DFINITY's ckETH Minter contract in connection with sealed NY civil case 26-cv-2327. ZachXBT calls it 'the most incompetent freeze' he has witnessed.","source":"","source_url":"https://news.bitcoin.com/usdc-freeze-controversy-zachxbt-says-circle-froze-16-legitimate-wallets-missed-real-hacks/"},{"date":"2026-03-26","event":"Circle partially reverses the March 23 wallet freeze, unfreezing at least five of 16 wallets including DFINITY's ckETH Minter.","source":"","source_url":"https://www.banklesstimes.com/articles/2026/03/26/circle-partially-backs-down-unfreezes-1-of-16-controversial-usdc-wallets-zachxbt/"},{"date":"2026-04","event":"Drift Protocol exploited for approximately $285 million. Attackers bridge $232 million USDC via Circle's CCTP over six hours during U.S. business hours. Circle takes no freeze action.","source":"","source_url":"https://www.coindesk.com/business/2026/04/03/circle-under-fire-after-usd285-million-drift-hack-over-inaction-to-freeze-stolen-usdc","date_original":"2026-04-01"},{"date":"2026-04-02","event":"ZachXBT publicly accuses Circle of being 'asleep' during the Drift hack and labels Circle, Jeremy Allaire, and USDC 'bad actors for the industry.'","source":"","source_url":"https://www.cryptotimes.io/2026/04/02/circle-had-6-hours-to-freeze-stolen-drift-funds-it-did-nothing-zachxbt/"},{"date":"2026-04-13","event":"Circle CEO Jeremy Allaire publicly states Circle will not freeze USDC without a court order or formal law enforcement directive.","source":"","source_url":"https://www.coindesk.com/business/2026/04/13/circle-ceo-says-he-won-t-freeze-usdc-without-a-court-order-even-as-hackers-walk-away-with-millions"},{"date":"2026-04-14","event":"Class-action lawsuit filed against Circle in U.S. District Court of Massachusetts by Joshua McCollum on behalf of 100+ Drift hack victims, alleging negligence and aiding and abetting unlawful conversion of funds.","source":"","source_url":"https://www.thestreet.com/crypto/markets/circle-slapped-with-class-action-lawsuit-over-2026s-largest-hack"},{"date":"2026-04-16","event":"Tether and Solana Foundation announce $150 million recovery plan for Drift Protocol hack victims. Drift Protocol subsequently transitions its core settlement layer from USDC to USDT.","source":"","source_url":"https://www.dlnews.com/articles/regulation/drift-user-sues-circle-for-inaction-in-biggest-hack-of-2026/"}],"sources_used":[],"source_tags":["etherscan","ofac","zachxbt"],"addresses":[],"reviewed":true,"reviewed_by":null,"model_used":"claude-sonnet","created_at":"2026-05-04T16:04:55.496183+00:00","updated_at":"2026-08-29T01:34:56.048+00:00"}}