Circle faces lawsuit over USDC moved after Drift exploit

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Circle faces lawsuit

Highlights

Investors in Drift Protocol filed a class-action lawsuit against Circle, alleging failure to freeze $230 million in stolen USDC.
The April 1 hack resulted in total losses of more than $280 million.
Circle maintains it only freezes assets upon official law enforcement or court requests.

The lawsuit, filed in Massachusetts federal court by Joshua McCollum on behalf of more than 100 investors, claims that Circle took no action when hackers moved approximately $230 million in USDC through its Cross-Chain Transfer Protocol (CCTP). Plaintiffs argue that Circle had both the technical capability and legal authority to freeze the stolen funds but chose not to intervene.

“Circle allowed this criminal use of its technology and services,” the complaint states. “These losses would not have occurred, or would have been substantially mitigated, had the USDC issuer acted in a timely manner.”

Background of the exploit

The April 1 attack on Drift is considered one of the largest hacks in Solana’s history. Hackers, believed to be linked to North Korea, spent several months posing as a legitimate quantitative trading firm to gain the platform’s trust before executing the exploit. Following the incident, Drift’s governance token DRIFT lost approximately 70% of its value.

Blockchain researcher ZachXBT and other community members criticized Circle for its slow response, noting that the company had several hours to blacklist wallets and freeze the transferred funds. Circle’s CEO Jeremy Allaire has defended the company’s policy, stating that it only freezes USDC wallets upon receiving formal requests from law enforcement or court orders, citing legal risks associated with acting unilaterally.

Broader implications

The lawsuit comes as Circle faces growing competition in the stablecoin market. Meanwhile, Tether has offered Drift up to $148 million in funding to help repay affected users and facilitate the platform’s transition from USDC to USDT as its primary settlement asset.

Drift, which had over 175,000 users and a cumulative trading volume of around $150 billion before the hack, described the attack as a highly sophisticated operation involving compromised nonces and pre-signed transactions.

Implications for stablecoin issuers

The case highlights the growing debate over the responsibilities of stablecoin issuers during security incidents.

As decentralized finance protocols become more prominent, questions about the speed and scope of intervention by centralized issuers like Circle and Tether are likely to intensify.

The outcome could influence how future exploits are handled and shape trust in stablecoins as a cornerstone of the crypto ecosystem.

We also reported that Tether has stepped in with up to $148 million to support Drift’s recovery and transition to USDT.

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