Blockchain Investigator ZachXBT Criticizes Circle for Delayed USDC Freezes on Over $420 Million in Illicit Funds
By RT Watson | April 3, 2026, 11:00 AM EDT
Prominent blockchain investigator ZachXBT has publicly accused Circle, the issuer of the USDC stablecoin, of sluggishly freezing addresses linked to illicit funds totaling more than $420 million. The allegations surfaced in a detailed thread posted to X (formerly Twitter) on Friday, sparking renewed scrutiny on Circle’s compliance and enforcement measures.
Key Allegations: Slow Response to Major Exploits
ZachXBT, known for his in-depth crypto investigations, pointed to 15 separate incidents where Circle reportedly failed to act swiftly to freeze USDC associated with illegal activities. The most notable example cited was the recent Drift Protocol exploit, which saw over $280 million drained in a sophisticated attack.
According to ZachXBT:
"The exploiter used Circle’s Cross-Chain Transfer Protocol (CCTP) to bridge approximately 232 million USDC from Solana to Ethereum across more than 100 transactions over a six-hour period. Over 10 decentralized finance (DeFi) protocols on Solana were indirectly affected. Despite laundering occurring on Circle’s own native bridge for hours, no USDC was frozen."
Blockchain analytics firm Elliptic later suggested multiple indicators linking the Drift Protocol exploit to the Democratic People’s Republic of Korea, highlighting the geopolitical risks tied to digital asset crime.
ZachXBT also called out an older case involving the Cetus Protocol hack last May, valued at around $223 million. The exploiter moved 61 million USDC via CCTP from Sui to Ethereum through over 60 transactions in 90 minutes. Although the Cetus team and crypto security experts requested immediate action, Circle reportedly took a month to blacklist the offending address—by which time the stolen USDC had already been converted to Ethereum.
Circle’s Response: Compliance within the Rule of Law
In response to the allegations, a Circle spokesperson told The Block:
"Circle is a regulated company that complies with sanctions, law enforcement orders, and court-mandated requirements. We freeze assets when legally required, consistent with the rule of law and with strong protections for user rights and privacy. This incident [Drift] underscores the need for stronger shared security, accountability, and lawful coordination across the digital asset ecosystem.”
Circle highlighted that its policy is to act in accordance with legal mandates while respecting user privacy, implicitly underscoring the complexities of cross-jurisdictional crypto enforcement.
Context: USDC’s Standing and Industry Implications
Circle’s USDC is the world’s second-largest stablecoin with a circulating supply exceeding $77 billion. Marketed as a safer, U.S.-regulated alternative to other stablecoins such as Tether’s USDT, USDC plays a critical role in DeFi, exchanges, and institutional crypto adoption.
Despite its regulated status, critics like ZachXBT argue that Circle has the necessary resources and regulatory framework to act more aggressively—and routinely—against illicit uses of its stablecoin, especially given the high-profile hacks that have made headlines throughout 2025 and early 2026. ZachXBT summed up his position:
"Circle builds good products, and I hold USDC myself. This isn’t about wanting them to fail. But their compliance decisions have real impacts on real people. The $420 million figure only includes major public cases—the actual amount likely is much larger. As a U.S.-regulated public company, Circle owes it to users and the broader community to do better."
Earlier this year, ZachXBT joined crypto investment firm Paradigm as an incident response advisor, lending his expertise to help mitigate such security risks industry-wide.
Looking Ahead: Calls for Regulatory Clarity and Industry Cooperation
Circle and other stablecoin issuers have repeatedly voiced support for clearer U.S. regulatory guidance, believing it would bolster adoption of USD-pegged stablecoins as fundamental components of the financial system.
The Drift Protocol exploit and other recent hacks underscore the fragile nexus between innovation, security, and compliance in the fast-evolving crypto ecosystem. Observers suggest stronger collaboration between regulators, issuers like Circle, and on-chain analytics firms will be critical in curbing the misuse of digital assets.
About The Block:
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This article is for informational purposes only and does not constitute legal, investment, or financial advice.