Circle Explores Reversible USDC Transactions to Protect Users From Fraud but Does It Undermine Decentralisation?

Circle Explores Reversible Transactions To Combat Fraud While Challenging Crypto Traditions

Circle, the world’s second-largest stablecoin issuer, is exploring ways to introduce reversibility in transactions for its USDC tokens, a move that challenges the long-held principle of blockchain immutability.

The company aims to allow funds to be rolled back in cases of fraud or hacks, while still keeping settlements effectively final, according to Circle president Heath Tarbert.

“We are thinking through… whether or not there’s the possibility of reversibility of transactions, right, but at the same time, we want settlement finality. So there’s an inherent tension there between being able to transfer something immediately, but having it be irrevocable.”

Supporters of transaction reversibility argue it could protect victims of scams and boost mainstream trust in stablecoins.

Yet, the proposal raises concerns among crypto purists, as it deviates from the decentralised model where transactions are permanent and immune to unilateral changes by issuers or validators.

One venture capitalist described such a blockchain as “offensive.”

Learning From Traditional Finance To Enhance Crypto Reliability

Tarbert, a former chair of the US Commodity Futures Trading Commission, stressed the value of borrowing certain aspects from traditional finance.

“People say blockchain technology, stablecoins, smart contracts, are superior in technology to the current system. But there are some benefits of the current system that aren’t necessarily currently present.”

Developers are reportedly considering mechanisms that allow partial reversibility in specific circumstances, provided all parties agree.

The idea follows recent industry examples where transaction freezes proved effective.

When the decentralised exchange Cetus lost over $220 million in a hack on 22 May, validators managed to freeze $162 million, which was later returned following a governance vote by Sui validators.

While some critics argued this contradicted decentralisation, others praised the quick response as a model for handling crypto hacks.

Arc Blockchain Introduces Institutional Features With Reversibility Layer

Circle’s exploration of reversibility is tied to its new layer-1 blockchain, Arc, designed for financial institutions and enterprise applications.

Arc will use USDC as its native gas token and is expected to launch a public testnet this fall, with full deployment planned by the end of 2025.

Direct transaction reversals will not be possible on Arc.

Instead, the blockchain will allow parties to agree on counter-payments, functioning similarly to credit card refunds.

The network will also introduce a privacy layer, encrypting transaction amounts while leaving wallet addresses visible, addressing confidentiality concerns for banks and institutional clients.

Circle is integrating Arc with Fireblocks, which serves over 2,400 banks, providing custody and compliance support from day one.

Stablecoins Poised For Growth Amid Institutional Adoption

Circle currently has $74 billion of USDC in circulation and is positioning its stablecoin as a key tool for faster, cheaper cross-border payments and foreign exchange deals.

Analysts at Goldman Sachs estimate that USDC could grow by $77 billion by 2027, representing a compounded annual growth rate of 40% over three years.

@GoldmanSachs has just called it: a trillion-dollar stablecoin gold rush is coming.

Their latest research projects USDC to grow 40% annually through 2027, adding over $77 billion in market value.
The reason?
A $240 trillion global payments market, still largely untouched by… pic.twitter.com/s0QTYraZvV
— Stablecoin Insider (@stablecoininfo) August 20, 2025
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The project highlights a strategic contrast with Tether, which prioritised high-volume crypto trading and emerging market adoption, while Circle focuses on institutional credibility and integration with traditional financial systems.

Tarbert acknowledged that some users might shift funds from bank deposits or other assets into stablecoins, potentially creating new wealth streams.

Could Reversible Transactions Become A New Standard For Fraud Prevention?

While critics argue that reversible transactions undermine blockchain’s core principles, Coinlive sees potential benefits for mainstream adoption and investor protection.

Integrating a controlled reversibility mechanism could enhance trust, particularly among institutions wary of irretrievable losses from hacks or fraud.

However, balancing decentralisation, transparency, and privacy will be critical for Arc’s long-term viability and market acceptance.

Can Circle maintain its credibility while bending the rules of crypto orthodoxy to fight fraud effectively?

That challenge may define the next phase of stablecoin evolution.