Circle Faces Backlash After Allegedly Wrongful Freeze of 16 USDC Wallets
Circle, the issuer of the USD Coin (USDC) stablecoin, is under scrutiny after an onchain investigator alleged the company incorrectly froze 16 wallets linked to a sealed U.S. civil case. The wallets, according to researcher ZachXBT, belonged to legitimate operational businesses including crypto exchanges, online casinos, and foreign currency exchange services that appeared unrelated to the underlying legal matter.
ZachXBT, a respected onchain analyst with over five years of experience in blockchain investigations, stated that a basic onchain analysis could have quickly identified these as active business wallets. “An analyst with basic tools could have identified, within minutes, that these were operational business wallets from the thousands of transactions they process,” he wrote in a social media post.
Source: ZachXBT
He further criticized the decision, noting the case is sealed and asserting Circle had “zero basis” for the freezes. “In my 5-plus years of investigations, it could potentially be the single most incompetent freeze I have seen,” ZachXBT added. “This is what happens when you outsource your freezing decisions to literally any random federal judge instead of having a process.”
A simplified illustration of the USDC wallets frozen by Circle. Source: ZachXBT
Cointelegraph reached out to Circle for comment on these allegations but had not received a response by the time of publication.
The Centralization Dilemma: Stablecoins and Control
The incident has reignited a core debate within the cryptocurrency community: the inherent centralization of fiat-pegged stablecoins. Unlike decentralized cryptocurrencies, issuers like Circle retain the technical ability to freeze or reverse transactions in USDC, a power often exercised in response to legal requests. Critics argue this capability undermines the foundational crypto principles of permissionlessness and censorship resistance.
“This is your 10th reminder that centrally issued stablecoins are not actually yours; they can be frozen, unlike cash,” said Mert Mumtaz, founder of Helius, a provider of remote procedure call (RPC) nodes for Solana. His comment highlights a common concern among developers and users who rely on stablecoins for decentralized finance (DeFi) operations.
Crypto Executives Warn Regulated Stablecoins Could Lead to CBDCs
The controversy arrives as U.S. regulators consider frameworks for payment stablecoins. Jean Rausis, co-founder of the decentralized trading platform Smardex, pointed to the proposed GENIUS Act—a key legislative framework for stablecoins—as potentially enabling a privately managed central bank digital currency (CBDC). He argues that centralized stablecoins already grant issuers financial surveillance and asset freezing powers akin to what a CBDC would provide.
This perspective has gained traction beyond the crypto industry. In May 2025, former U.S. Representative Marjorie Taylor Greene claimed that regulated stablecoins under the GENIUS bill represent a “CBDC Trojan Horse,” suggesting they could pave the way for broader government-controlled digital currency.
The incident underscores a growing tension: as stablecoins like USDC become integral to global crypto markets—with a circulating supply often exceeding $30 billion—their centralized control mechanisms face heightened scrutiny. For businesses and individuals, the risk of unexpected freezes based on broad legal actions introduces a layer of uncertainty that contrasts with the “digital cash” narrative sometimes used to describe crypto assets.
Related: ZachXBT says fake X accounts used viral war content to drive crypto scams
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