ZachXBT Releases ‘Circle Files,’ Alleges USDC Issuer Compliance Failures Across Multiple Crypto Hacks

On-chain investigator ZachXBT has released the ‘Circle Files’ in which he highlighted the stablecoin issuer’s alleged compliance failures. This follows the Drift exploit, in which he called out the USDC issuer for failing to freeze the hacked stablecoin assets despite having enough time to do so.

ZachXBT Highlights Compliance Failures In ‘Circle Files’

In an X post, the on-chain investigator released a thread, which he termed the ‘Circle files,’ involving over $420 million in alleged compliance failures since 2022. This includes fifteen crypto hacks in which the USDC issuer took minimal action against illicit funds.

The crypto hacks include the one involving the top crypto exchange Bybit, which took place last year and is the largest crypto hack in history. ZachXBT noted that the USDC issuer took action late regarding the 338,000 USDC that was at risk.

Specifically, he stated in the Circle files that the stablecoin issuer took 24 hours longer than Tether to freeze these coins, despite requests from law enforcement, Bybit, and private-sector experts. The on-chain investigator indicated that the USDC issuer has so far failed to live up to its “robust compliance program.”

He highlighted Circle’s USDC terms, in which the stablecoin issuer reserved the right to block certain USDC addresses if it determined they were linked to illegal activity or to activity that violates its terms. ZachXBT explained that the stablecoin issuer could easily take action as its token contract includes a freeze/blacklist function, which aligns with its terms of service.

The on-chain investigator also referenced the regulatory angle in the Circle files, as the stablecoin issuer is subject to U.S. federal and state financial regulations. As such, it has a duty to act in such cases involving these crypto hacks.

The USDC Issuer’s Alleged Failure In The Drift Hack

The Drift hack is the latest crypto exploit in which the USDC issuer allegedly failed to take action. The Drift protocol suffered a $280 million exploit, with $232 million involving USDC, as the hacker moved the stolen assets.

Notably, ZachXBT had earlier called out Circle for its delay in taking action during the exploit. He reiterated this in the Circle files, noting that the exploiter used Circle’s native bridge, CCTP, to transfer over $232 million in USDC from Solana to Ethereum across more than 100 transactions over more than six consecutive hours.

He added that Circle didn’t freeze any of these funds despite the attacker laundering funds for over six hours across the stablecoin issuer’s native bridge. The hack indirectly impacted over 10 DeFi protocols across the Solana ecosystem in addition to Drift.

Meanwhile, the on-chain investigator noted that the $420 million only accounts for major public cases and that the real figure is likely significantly higher. “They (Circle) have every tool and resource available to do better. They just haven’t,” he said.