Circle's Impossible 230M USDC Choice
And how the controversy is handing Tether a PR win.
At The Defiant we have witnessed how DeFi and TradFi, once strictly running on separate paths, are now intersecting to create a new and better type of highway. Our response is Converge, an information platform focused on the biggest story in finance: the intersection of blockchain technology, digital assets and Wall Street.
We will be launching the brand’s dedicated website soon, but today, you get a glimpse: the inaugural issue of the Converge newsletter, our weekly briefing detailing the biggest stories at this juncture (fka Real World).
This week: stablecoin issuers face a compliance reckoning after Drift’s $280M hack, Tether doubles down on its consumer strategy, and Tempo bets that privacy is the unlock for enterprise stablecoin adoption.
Chris, The Defiant contributing editor and Partner at Storaker Advisory
TOP NEWS THIS WEEK
- Circle Stood Down While $230M Walked Out the Door
- Tether’s “People’s Wallet” Goes Direct to Consumer
- Tempo Tackles Crypto’s Privacy Paradox for Enterprises
ALSO IN THIS ISSUE
- Goldman Sachs files for its first Bitcoin-linked ETF
- Charles Schwab launches spot BTC and ETH retail trading
- Bitwise’s AVAX ETF debuts with in-house staking
- X rolls out Cashtags with live price charts, Wealthsimple pilot
- HSBC completes tokenized deposit pilot on Canton Network
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Circle Stood Down While $230M Walked Out the Door
The Drift exploit has set off a chain of events that implicate the entire stablecoin compliance model and handed Tether an unexpected PR win.
North Korean hackers drained $285 million from Drift Protocol on April 1, roughly $232 million in stolen USDC moved through Circle's own Cross-Chain Transfer Protocol over six hours — during U.S. business hours, across more than 100 transactions. Circle did not freeze the funds. A class action followed.
The episode has split the industry into two camps. Circle argues the issuer should not become an extralegal enforcer. Critics counter that Circle had both the capability and the obligation to act, pointing to the Bank Secrecy Act's proactive requirements.
Further, I argue there’s a distinction between passively failing to freeze vs. actively validating burn-and-mint transactions through CCTP.
What happened at Drift
The Drift exploit was not a smart contract bug. It was a six-month social engineering campaign: the attackers posed as a quantitative trading firm, deposited over $1 million for credibility, then used Solana's durable nonce mechanism to trick Security Council members into pre-signing transactions that handed over administrative control. Once in, they removed a governance timelock, whitelisted a fabricated token as collateral, manipulated its oracle price, and drained the vaults in under 20 minutes. SEAL 911, Elliptic, TRM Labs, and Chainalysis have all pointed to North Korean state-linked operations. Drift's TVL collapsed from $550 million to under $250 million, with ripple effects across more than 20 DeFi protocols.
The attackers converted stolen assets to USDC and bridged them from Solana to Ethereum through Circle's CCTP. Once the USDC arrived on Ethereum, the attackers swapped into ETH and routed it through Tornado Cash, exiting Circle's freeze authority entirely.
The case for restraint
Circle CEO Jeremy Allaire responded at a press conference in Seoul on April 13. "Circle has a very, very clear performance obligation under the law," he said. Circle freezes wallets "at the direction of law enforcement or the courts" — not unilaterally. Allowing a private company to make those calls, he said, creates a "very significant moral quandary." CSO Dante Disparte reinforced the position: freezes happen "because the law requires us to act," not at Circle's discretion. Both called on Congress to advance the GENIUS Act and CLARITY Act to close the gap.
ARK Invest's Lorenzo Valente highlighted the dangers of private companies making unilateral compliance calls, framing it as "Why freeze the Drift hacker but not that sketchy Nigerian fraud wallet?" while conceding the stolen funds would likely finance North Korea's weapons program. "Whether Circle got it right comes down to how much you weigh rule-of-law principles vs concrete harm."
The case that Circle should have acted
On-chain investigator ZachXBT documented the fund movements in real time, pressuring Circle to act. In a thread titled "The Circle USDC Files," he cataloged more than $420 million in alleged compliance failures across 15 incidents since 2022. The scrutiny sharpened when observers noted that just nine days earlier, Circle had frozen 16 USDC wallets tied to a sealed U.S. civil case. Aggressive action on a sealed civil matter; inaction during a nine-figure exploit transiting Circle's own bridge.
Traditional finance has a precedent for this exact scenario.
In February 2016, North Korea's Lazarus Group, the same operation implicated in Drift, compromised Bangladesh Bank's SWIFT terminal through a year-long social engineering scheme and issued 35 fraudulent transfer instructions totaling $951 million from the bank's account at the New York Fed.
The New York Fed then flagged and blocked 30 of 35 transactions on its own judgment. Only five, totaling $101 million, got through. RCBC, the Philippine bank that processed the receiving end without scrutiny, was fined ₱1 billion by its central bank. A branch manager was convicted of money laundering. Intermediaries at chokepoints were expected to act; those that didn't faced consequences. Nobody waited for a court order.
Stablecoin economist Austin Campbell drew the connection on the Law of Code podcast: "The stance of 'we just wait for the government' is going to prove insufficient both after rulemaking and, to be blunt, in a future world just in court." Under the Bank Secrecy Act, the duty to freeze funds connected to suspected criminal activity exists even absent a specific government directive. The BSA provides a safe harbor for good-faith freezes — but none for failing to act on known criminal activity. Campbell predicted Circle had created more legal exposure by not freezing than it would have by freezing.
On April 14, Gibbs Mura filed a class action against Circle on behalf of Drift investor Joshua McCollum and more than 100 affected users in the District of Massachusetts, alleging negligence and aiding and abetting conversion. The complaint cites the March 23 wallet freezes as evidence Circle had both the capability and willingness to intervene.
The regulatory gap: active infrastructure, passive rules
The debate has centered on Circle's freeze authority, a power the issuer exercises over USDC addresses after the fact. But the Drift case exposes a different and arguably more consequential gap: the absence of compliance frameworks governing Circle's very active and centralized role in cross-chain settlement.
Every CCTP transfer involves a sequence of discrete steps: a burn on the source chain, an observation and verification by Circle's Attestation Service, the issuance of a cryptographic attestation, and a mint on the destination chain. Arguably, the mint step is itself an act of issuance: Circle is creating new USDC for the receiving party.
When that party is a known attacker moving stolen funds, the question is whether the issuer's compliance obligations should apply at that point of issuance.
The GENIUS Act, enacted July 2025, treats stablecoin issuers as BSA financial institutions. A FinCEN/OFAC joint proposed rule published April 10 — nine days after the exploit — mandates AML and sanctions programs for issuers. Europe's MiCA framework imposes its own requirements on stablecoin issuers within the EU. But none of these frameworks addresses the active steps an issuer performs when operating a cross-chain bridge, or whether those steps carry their own screening obligations distinct from the issuer's general freeze authority.
Tether's PR victory
Security researchers have noted a further detail: during the $1.5 billion Bybit hack in 2025, the Lazarus Group deliberately avoided USDT, consistent with sophisticated actors pricing issuer intervention policies into their planning. In the Drift case, the attacker routed specifically through USDC and CCTP. If state-sponsored hackers are choosing USDC over USDT because they expect Circle not to act, the compliance narrative that has favored USDC for years is working in reverse.
Ironically, Tether, the issuer long associated with opacity and offshore risk, is now positioning its willingness to intervene as a competitive feature.
To add insult to injury, on April 16, Tether stepped into the vacuum with a recovery package of up to $147.5 million; $127.5 million from Tether, $20 million from partners — structured as a revenue-linked credit facility and ecosystem grants targeting $295 million in user losses over time. The condition: Drift migrates from USDC to USDT on Solana, bringing 128,000 users and 35 ecosystem teams onto USDT-denominated trading.
Drift's settlement-layer switch is the first driven explicitly by a compliance-response failure. It won't be the last.
Sources: Tether recovery plan · Class action filing (McCollum v. Circle, D. Mass.) · ZachXBT threads 1 & thread 2 · Allaire defense (The Block) · Austin Campbell (Law of Code #185) · Lorenzo Valente (X) · FinCEN/OFAC proposed rule (Fed. Register, Apr. 10, 2026) · Circle CCTP docs · Elliptic · TRM Labs · Chainalysis
Tether’s “People’s Wallet” Goes Direct to Consumer
The self-custodial launch is less a standalone product and more a signal: Tether is building the full stack.
Tether this week unveiled tether.wallet, a self-custodial multichain wallet built on the firm’s open-source Wallet Development Kit (WDK). Branded as the “People’s Wallet,” it supports USDT, XAUT (Tether’s gold-backed token), Bitcoin (including Lightning Network), and USAT (Tether’s newly launched US-dollar-pegged stablecoin). At launch, it operates across Ethereum, Polygon, Plasma, and Arbitrum.
Two UX decisions stand out. First, fee payments: users can pay gas costs in the asset they’re sending, removing the need to hold a separate token for network fees — a persistent source of friction for non-native users. Second: the wallet supports human-readable addresses that resemble email handles rather than alphanumeric strings, lowering the error surface for sending.
Tether is now building a vertically integrated distribution stack. With $185 billion in circulating USDT, the firm already dominates issuance. The wallet extends that footprint directly to end users, bypassing third-party distribution and establishing a consumer relationship that Circle pursues via partnerships like Coinbase and Nubank.
The timing is deliberate. Within days of the wallet launch, Tether committed $127.5 million to Drift Protocol’s recovery and announced Drift’s migration from USDC to USDT on Solana. Separately, Tether recently engaged a Big Four accounting firm for its first-ever full independent audit, a meaningful signal to institutional allocators who have long flagged attestation gaps as a risk.
Source: Tether wallet launch
Tempo Tackles Crypto’s Privacy Dilemma for Enterprise Adoption of Tokenized Rails
The Stripe-incubated chain is addressing a core institutional holdout: nobody wants their payroll on a public ledger.
Tempo, the Stripe and Paradigm-backed payments Layer 1, launched Tempo Zones: private execution environments that let enterprises transact on parallel chains while staying connected to Tempo’s mainnet.
A Zone is a separate blockchain where transaction data is visible only to participants and the Zone operator, typically the enterprise itself or a third-party infrastructure provider. The operator gets full visibility for compliance and reporting, but holds no custody: assets are locked in a smart contract on Tempo’s mainnet and can only be withdrawn by the owning user. Crucially, Zone assets remain interoperable with the base layer, meaning on-ramps, off-ramps, and DEX liquidity are accessible from inside a Zone without bridging.
Use cases include payroll processing, treasury management, tokenized deposit settlement, and cross-border payment corridors. Tempo says phased deployments are underway across all four verticals with named design partners.
Enterprises can adopt Zones without waiting for base-layer upgrades or dealing with ZK-proof complexity. For institutions assessing stablecoin infrastructure, Zones provide a more tractable path than most of the alternatives currently on the market.
Source: Tempo Zones announcement
OTHER STORIES WORTH YOUR TIME
Goldman Sachs Files for Its First Bitcoin-Linked ETF
Goldman filed with the SEC for the Goldman Sachs Bitcoin Premium Income ETF, the bank’s first proprietary crypto fund, which will invest at least 80% in existing spot Bitcoin ETPs and layer a call-options strategy (covering 40–100% of BTC exposure) on top to generate yield. The fund won’t hold BTC directly.
Charles Schwab Launches Spot BTC and ETH Trading for Retail Clients
The $12 trillion brokerage is rolling out Schwab Crypto in the coming weeks, offering retail clients direct Bitcoin and Ethereum trading at 75 basis points within existing accounts. Paxos handles execution and sub-custody; initial launch is buy/sell only, with deposits and withdrawals planned for a future phase.
Bitwise Launches Avalanche ETF With In-House Staking
BAVA launches on NYSE Arca with a 0.34% management fee, the lowest among the three U.S.-listed AVAX ETPs, with plans to stake up to 70% of holdings to capture the current ∼5.4% AVAX staking yield, passing the bulk of rewards to shareholders.
X Rolls Out Cashtags With Live Price Charts, Pilots In-App Trading
X launched Cashtags on iPhone (US and Canada), surfacing real-time price charts for equities, crypto, and on-chain assets directly in the feed. Canadian users get a one-tap path to a pre-filled Wealthsimple trading screen, a step toward the super-app model X has been building toward with its money transmitter licenses in 40+ states.
HSBC Completes Tokenized Deposit Pilot on Canton Network
HSBC ran an atomic settlement simulation of tokenized deposits against other digital assets on Canton, Digital Asset’s enterprise chain. The pilot extends a growing institutional roster on Canton that now includes JPM Coin (natively issued) and a DTCC Treasury tokenization pilot.
Converge is produced by The Defiant. This briefing is for informational purposes only and does not constitute investment advice. thedefiant.io
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