Circle Unfreeze 5 of 16 USDC Wallets After ZachXBT Backlash

Circle Internet Group, the issuer of the USDC stablecoin, has unfrozen five of the 16 business hot wallets it blacklisted last week, according to blockchain investigator ZachXBT, who first exposed the freeze and has been its most vocal critic. The partial reversal caps a turbulent week that saw Circle stock fall roughly 20 percent on separate regulatory concerns, and raises pointed questions about how the company handles compliance actions tied to sealed court orders.

What ZachXBT Found | The Original Freeze Exposed

ZachXBT flagged the wallet blacklistings on-chain earlier last week, noting that 16 business hot wallets had been frozen by Circle without any public disclosure. The wallets were flagged under a sealed court order, meaning Circle was legally prohibited from acknowledging the action publicly at the time it was taken. ZachXBT's on-chain analysis made the freeze visible regardless, triggering immediate backlash from affected wallet holders and the broader crypto community.

Critics argued the episode illustrated the structural risk of holding USDC at scale: any wallet, including those belonging to legitimate businesses, can be frozen by Circle at any time under a court order, with no advance notice and no public explanation until the seal is lifted. Circle has long disclosed this capability in its terms of service, but seeing it applied to 16 wallets simultaneously made the risk concrete in a way that documentation had not.

The Partial Reversal | Five Wallets Unfrozen

Circle confirmed to ZachXBT that five of the 16 wallets had been unfrozen following review. The company did not publicly explain why those five were released while 11 remain frozen, or whether the underlying court order was modified. The lack of explanation has frustrated the companies whose wallets remain blacklisted, several of whom have said publicly that they do not know why they were targeted and have received no communication from Circle about a path to resolution.

The partial reversal is consistent with how Circle has handled similar situations in the past: take a compliance action under legal compulsion, say as little as possible publicly, and quietly reverse the parts that prove unjustified after scrutiny. That approach protects Circle legally but does little for its reputation among institutional users who need certainty about whether their stablecoin holdings are reachable.

Circle Stock | 20% Drop from Separate Regulatory Pressure

The wallet freeze controversy landed in the same week that Circle stock fell roughly 20 percent, though the two events are distinct. The stock decline was driven primarily by the leak of draft language in the Digital Asset Market Clarity Act banning stablecoin yield payments, a provision that would directly limit how Circle can monetize USDC reserves. Circle's business model depends on earning interest on the Treasury bills and overnight repos backing USDC, and any restriction on passing that yield to holders or partners would reduce demand for the product.

Together, the two developments put Circle in a difficult position heading into what was supposed to be a favorable regulatory environment. Analysts at Bernstein had argued that Circle and Coinbase were positioned as the stablecoin kings of the AI era, but that thesis depended on a light-touch regulatory framework that is looking increasingly uncertain.

What It Means for USDC | Censorship Risk at Scale

USDC is the second-largest stablecoin by market cap, with roughly $60 billion in circulation. Its on-chain freezing capability has always been a known feature, required by U.S. law and disclosed by Circle. But the scale and opacity of last week's action, combined with the partial reversal that came only after public pressure, has renewed debate about whether centralized stablecoins carry censorship risks that are incompatible with serious institutional use.

Some traders are pointing to the episode as validation for holding USDT or decentralized alternatives over USDC for operational hot wallet balances. Circle has not addressed that narrative directly, and its silence on which wallets remain frozen and why is unlikely to help. The full USDC overview and Circle's compliance framework remain among the most scrutinized in the stablecoin sector.