- Circle is considering implementing reversible transactions for its USDC stablecoin to address fraud and disputes.
- This move comes as stablecoin issuers compete to enhance payment infrastructure following the enactment of the GENIUS Act in July.
- The new feature could allow refunds similar to credit card chargebacks, but would require a separate process since USDC’s blockchain, Arc, features near-instant finality.
- USDC already has a freeze function, but critics say Circle has been slow to use it during major hacks, such as the GMX incident.
- Compared to competitor Tether, Circle has frozen significantly fewer funds linked to illicit activity.
Circle, the company behind the USDC stablecoin valued at $74 billion, is exploring the possibility of reversible transactions to address cases of fraud or disputes. The company’s president, Heath Tarbert, acknowledged the challenge of balancing immediate transactions with the desire to allow reversals. This consideration is part of ongoing efforts among stablecoin providers to align with regulatory requirements and become more integrated into mainstream financial systems.
Recent reporting from the Financial Times indicates that Circle may introduce a mechanism allowing parties to agree to counter-payments, or refunds, similar to credit card chargebacks. The company recently launched its own blockchain, Arc, which offers “deterministic sub-second settlement finality.” This feature means that any reversible transaction would need to operate outside the main blockchain, as transactions are immediately settled.
Tarbert stated there is “an inherent tension there between being able to transfer something immediately, but having it be irrevocable.” The move to make transactions reversible comes after the passage of the GENIUS Act, which requires stablecoin issuers to maintain technical capacity for seizing or freezing tokens during legal cases.
Circle’s USDC already includes an Access Denial, or freeze, feature that halts movement of funds in certain wallet addresses. However, observers have questioned why reversal tools are necessary when freezing and reissuing tokens can accomplish similar goals. Critics have also cited Circle’s slow response to major hacks, including a $42 million theft from the decentralized GMX exchange. In that event, the Hacker managed to move large amounts of USDC to other assets before any freeze action was taken.
According to data from crypto compliance firm AMLBot, Tether has frozen more than 1.5 billion of its USDT tokens across over 2,400 addresses. In contrast, Circle has blocked just over 100 million USDC ($100 million) on 347 addresses. Some blockchain researchers, including ZachXBT, have publicly criticized Circle for a lack of action in freezing suspect funds.
The GENIUS Act mandates that stablecoin issuers comply with legal orders to freeze, seize, or destroy tokens when required, reinforcing pressure on Circle and its competitors to strengthen protections for users.
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