Circle explores reversible USDC transactions to recover funds lost in hacks and fraud, reports FT.

Circle explores reversible USDC transactions to recover funds lost in hacks and fraud, reports FT.

Circle, the world’s second-largest stablecoin issuer, is reportedly examining mechanisms to allow reversible transactions, a move that could help recover funds in cases of fraud and hacks. This approach appears to contradict one of crypto’s core principles: the finality of transactions, which is beyond centralized control .

Circle President Heath Tarbert told the Financial Times that the company is exploring ways to make transactions reversible while maintaining settlement finality. The idea is to create a system where funds can be recovered in case of fraud or hacks, while still ensuring that transactions are settled immediately and cannot be reversed unilaterally .

Supporters of this approach argue that it could help victims of scams and bolster trust in stablecoins among mainstream users. However, the idea directly challenges the decentralized model that underpins crypto, where transactions are permanent and immune from unilateral changes by issuers or validators .

A recent example of the utility of reversible transactions occurred when decentralized exchange Cetus was exploited for over $220 million worth of digital assets. Validators managed to freeze $162 million of the stolen assets, and a week later, Sui validators approved a governance proposal to return the frozen funds to Cetus .

Despite the centralization risks, some industry watchers praised the rapid response as a step forward against growing crypto industry hacks. This incident highlights the potential benefits of reversible transactions in specific scenarios .

The push towards reversible transactions comes amid Circle’s broader efforts to adopt features from the traditional finance (TradFi) industry. Circle President Heath Tarbert noted that while blockchain technology is superior in many ways, there are some benefits in the current system that aren’t necessarily present in blockchain, such as the need for some degree of reversibility for fraud .

In addition to exploring reversible transactions, Circle is also pushing into institutional-grade infrastructure. The company announced the launch of its layer-1 (L1) blockchain, Arc, designed to offer an “enterprise-grade foundation” for stablecoin payments, foreign exchange, and capital markets applications. Arc will leverage Circle’s USDC (USDC) as its native gas token for blockchain transactions .

Circle plans to roll out Arc as a public testnet this fall, ahead of a full launch by the end of 2025. The debut will integrate with Fireblocks’ digital asset custody and tokenization platform for its custody and compliance support solutions, giving banks and asset managers access to the blockchain from day one .