Behind the Circle freezing controversy: Where are the boundaries of power for US dollar stablecoins?

Writing by: Conflux

If one day, you find that your stablecoin suddenly cannot be transferred out, cannot be withdrawn, or even has no explanation—at that moment, you will realize: the money you thought belonged to you may not truly belong to you.

This is not a hypothetical.

Recently, two nearly simultaneous events made this issue concrete, real, and unavoidable for the first time. On one side, Circle was publicly questioned after a freeze operation; on the other, Tether began gradually unfreezing USDT addresses that had previously been blacklisted.

What seem like independent incidents actually point to the same core question: How much power do issuers of US dollar stablecoins really have? Where are the boundaries?

A Publicly “Called Out” Freeze

The starting point of the matter, even somewhat ironic.

USD stablecoin issuer Circle announced it was selected as one of Fast Company’s most innovative companies in 2026, and proudly stated: “The speed of money flow is upgrading to internet speed, and we are building the infrastructure to support this shift, enabling instant exchange of global value.”

But almost at the same time, a “heavy blow” was delivered. On-chain investigator ZachXBT publicly pointed out: Circle froze 16 completely unrelated business hot wallets. Based on on-chain activity, these addresses appeared to be normal operational accounts; some cases even involved undisclosed civil lawsuits. Without public justification, these commercial addresses were directly frozen.

His assessment was very direct: “This is possibly the most incompetent freeze operation I’ve seen in my 5 years of investigation.”

More critically, it’s not about freezing the wrong accounts, but: “You outsourced the freeze decision to a federal judge instead of establishing your own review mechanism.”

This is the real key.

Freeze Is Not Just Freezing

Many underestimate the impact of “freezing,” thinking it’s just a single address that can’t move funds. But this incident has proven: what is actually frozen is never just one address, but an entire flow of funds.

A chain reaction quickly ensued:

Users couldn’t withdraw to the related addresses from exchanges

Exchanges’ KYT (Know Your Transaction) systems were triggered

Normal business operations were directly interrupted

This means a single wrong decision could cut off an entire segment of the fund flow.

And just as Circle was pushed into the spotlight, Tether suddenly unfreezed multiple addresses of previously blacklisted USDT.

This timing is hard to interpret as mere coincidence.

Although on the surface both companies did the same thing—unfreezing—the deeper difference is key: Circle was passively correcting after being publicly questioned, while Tether was making synchronous adjustments without clear accusations.

Who Really Owns Stablecoins?

This incident has brought to the surface a long-ignored fact: US dollar stablecoins have never been “immunity from intervention.”

As of the time of writing, USDT and USDC together account for 82.4% of the total stablecoin market cap, almost monopolizing the entire market. In other words, most of the dollar stablecoins in circulation are fundamentally built on the same set of rules:

Centralized issuance

Possession of freeze authority

Potential human intervention

So the question is: Are you using “on-chain dollars,” or “frozen dollars”? Essentially, this is a classic question: Are dollar stablecoins a financial infrastructure or a regulatory tool?

An Emerging “Gray Area”

Since these events, industry discussions have shifted to focus on:

Who has the authority to freeze?

Are the reasons for freezing publicly disclosed?

Is on-chain transparent review necessary?

How to compensate for wrongful freezes?

In other words, the issue of dollar stablecoins is shifting from a “technical problem” to a “power problem.”

Many might think this is just a game between institutions. But in reality, if you hold stablecoins, trade with stablecoins, or participate in on-chain activities, you are already part of this system.

And a very direct question left by this incident is: if one day your funds are mistakenly frozen, what can you do?

The debate over the “power boundaries” of USD stablecoins is far from over. Stablecoins are becoming the foundational vehicle for global capital flows. And any vehicle that holds the power to “freeze” is no longer just a tool.

It itself becomes a form of power that needs to be constrained.

This content is from the Hong Kong Monetary Authority and is for reference only. It does not constitute any investment advice. The market carries risks; invest cautiously.