Circle Lawsuit Tests Whether Technical Power to Freeze Stablecoins Creates Legal Liability

Drift Protocol investors may face permanent losses of $230 million in USDC after a class action lawsuit alleges that Circle Internet Financial failed to prevent the laundering of stolen funds. The lawsuit, filed April 14 in the U.S. District Court of Massachusetts, claims Circle knowingly permitted attackers to move stolen stablecoins from Solana to Ethereum using Circle's Cross-Chain Transfer Protocol (CCTP) over 100 transactions across eight hours.

This movement followed the April 1 exploit of Drift Protocol, where attackers executed pre-signed administrative transactions to seize governance control and drain approximately $286 million. The breach occurred after the removal of a timelock safeguard days earlier. Following the attack, Drift's total value locked fell from $550 million to under $250 million, the DRIFT token declined more than 40%, and at least 20 other DeFi protocols reported indirect losses.

Plaintiffs argue that Circle's technical ability to freeze assets—evidenced by a previous instance where it froze 16 wallets under court direction—creates a legal duty to act during active heists. Circle maintains that it only freezes USDC when required by law and that any intervention must be authorized by legal authorities.

The lawsuit alleges Circle's inaction allowed attackers to launder the funds.