Circle CEO Allaire defends decision not to freeze USDC in Drift exploit, citing ‘moral quandary’

Jeremy Allaire, CEO of Circle, said that the company does not freeze USDC wallets unrelated to legal proceedings.

In a press conference in Seoul, South Korea, on Monday, Allaire responded to a question asking for his comments on the ongoing criticism online of the company’s action, or inaction, in freezing USDC funds involved in hacks and exploits.

That criticism grew more prominent when DeFi protocol Drift was exploited for $280 million earlier this month, tied to a sophisticated, six-month social engineering scheme likely carried out by North Korean actors.

Prominent onchain voices, including blockchain sleuth ZachXBT, published harsh criticism against Circle, condemning the company for not freezing the reported $230 million worth of USDC from Drift that was moved from Solana to Ethereum via Circle’s Cross-Chain Transfer Protocol.

ZachXBT previously criticized Circle for freezing 16 USDC wallets linked to separate businesses without giving an official explanation, where the onchain sleuth alleged the wallets were tied to an ongoing U.S. civil case. Other voices on social media also criticized and questioned the perceived inconsistency.

‘Moral quandary’

“Circle has a very, very clear performance obligation under the law,” Allaire said. “Circle follows the rule of law, and we are able to undertake actions such as freezing a wallet at the direction of law enforcement or the courts.”

Allaire continued by saying that Circle as a company does not get to decide “what is the right path or not,” and that this becomes a very significant “moral quandary” if a private company gets to make such decisions. 

“If there are others that believe that Circle should just step away from what the law says and do its own, make its own decisions, I think it’s a very risky proposition,” Allaire added.

This stance may be partly modified in the future, as Allaire mentioned that it is currently working with U.S. authorities developing the Clarity Act to have the bill provide a specific “safe harbor” for issuers like Circle, to allow them to take preventive actions under certain extreme circumstances.

“That is something that we’ve been discussing with lawmakers, and we believe would be necessary, but we need that to be in the law, not just what we decide on our own,” Allaire said.

Korea expansion

Meanwhile, Circle announced earlier today that it has signed a memorandum of understanding with the two largest crypto exchange operators in South Korea — Dunamu (Upbit) and Bithumb. The two companies often take up over 95% of the daily crypto trade volume in the country.

“[These] collaboration agreements really span continued work in the promotion and adoption of USDC on Korean exchanges and other technology collaborations that we can pursue around some of the other things that Circle is working on,” Allaire said during the press conference.

Circle has already established relationships with several major financial institutions in South Korea, including Hana Financial Group, as stablecoin regulations in the country take shape. Local legislators are currently developing the Digital Asset Basic Act, a comprehensive set of rules covering stablecoins, crypto ETFs, and the overall standards for the industry.

The bill is gaining significant momentum as it is expected to establish the basic framework for a Korean won-denominated stablecoin market, which South Korean President Lee Jae-myung pegged as one of his presidential priorities.

“It’s our belief that, with these laws creating a way for a company like Circle to come in and operate and be regulated here, that would be very welcome,” Allaire said. “Anytime there’s a major market where the laws set up an opportunity for a global company with a foreign issued stablecoin, we will evaluate it very seriously. And so our expectation is that these laws will create a path for that.”

In the case that the Digital Asset Basic Act clears the way for Circle to operate in South Korea, Allaire said the company will set up a local presence to become properly licensed locally.

However, Allaire also said that Circle is not planning to issue its own Korean won stablecoin, citing how he expects the Digital Asset Basic Act to most likely allow issuance for Korean banks and other fintechs, not a global corporation. 

“We have built some of the most important and successful technology in the world for stablecoin operations, for issuing stablecoins, for the technology that can be used to make them work across these blockchain networks,” Allaire said. “The technology platforms we’ve built, I think, can be very useful to the market here, and so we may find ways to partner with Korean won stablecoin issuers and to be supportive of these emerging consortiums as they look to build Korean digital currencies.”

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